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AA-rated Cortesi: why global tech firms fail in China

AA-rated Cortesi: why global tech firms fail in China

Investors are being put off by the design of Chinese websites and are overlooking potential opportunities in the technology sector as a result.

Speaking to Citywire Selector, Jian Shi Cortesi, who is a Citywire AA-rated China equity specialist at GAM, said in order to understand the internet business in China one has to understand its language and culture.

‘One thing people say is Chinese websites are too busy. When you look at the page, there are so many different things, while the western websites are much cleaner, but this is related to the culture,’ she said.

'For example when Chinese people eat they have ten different things on the table all at once, because Chinese people like choices. For western people, they want one course at a time and maximum four or five courses, they don't want to mix ten things together.

'This is why a lot of native Chinese technology companies succeeded, whereas international companies failed in China. Because of this dynamic there are Chinese technology internet companies that have really grown from zero to huge and created a big universe for us to choose from.'

Cortesi devotes 34.9% of the JB EF China Evolution fund to IT. The largest holding in the fund is internet company Tencent Holdings (8.80% of the portfolio) followed by ecommerce company Alibaba Group (7.29%).

Elsewhere in the fund, Cortesi also has smaller positions in search engine Baidu (5.03%) and microblogging site Weibo (4.43%)

She said many investors underestimate the capacity of online companies in China, which rival their western counterparts.

‘In the technology sector there are many opportunities in China. Many people don't realise that the technology sector is huge. In Beijing alone you have more than ten technology companies with a market cap above $1 billion. That is only surpassed by Silicon Valley,’ Cortesi said.

China will not be spared

In terms of the macro outlook for China, Cortesi said the country looks positive. While China's domestic markets may not repeat problems like those seen at the start of the year, they are still vulnerable at a global level.

'The next bout of volatility might not necessarily come from China, because we have the Fed rate hike pending. In Europe there is still some level of uncertainty but today the global market is very much correlated. So if we have a global sell off, China will not be spared. They may be even more impacted than other markets.'

'In terms of debt problems, we still have some negative news but so far we haven’t had much. There are pockets in the financial system which we might care more about. For example we could hear of the failure of banks which help finance heavy industries. Any such news flows could trigger the market to turn more cautious.'

Over three years to the end of September 2016, the Julius Baer EF China Evolution fund returned 27.74% in US dollar terms. This compares to a rise of 8.81% by its Citywire-assigned benchmark, the MSCI China TR USD, over the same time frame. 

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