China state investor, wealthy family-backed firm look for 'self reliance' bets
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A Chinese state-backed investor and a private equity firm backed by one of Hong Kong's wealthy families said they will either avoid or adopt a cautious attitude towards investing in private companies that are net export-oriented or are highly dependent on overseas markets.
Executives from Greater Bay Area Homeland Investments and Hong Kong tycoon Adrian Cheng's C Capital told the Asian Financial Forum on Wednesday that their strategy aimed to mitigate risks arising from China-US tensions and a potential recession this year.
Tiffany Chen, Greater Bay Area Homeland Investments' managing director, said she expected domestic earnings to improve and interest in China to return as the country reopened following almost three years of Covid-related social restrictions.
Chen was bullish about China’s consumer sector, thought a key trend this year would be a shift towards a consumption-led economy.
The relatively low valuations in China’s private markets also create attractive investment opportunities, fuelling the fund's optimistic outlook for the year, and that it would look at such fields as consumer staples and hard technology development, she said.
Greater Bay Area Homeland Investments is a government-backed private equity fund set up in 2018 to facilitate innovative development in the Guangdong-Hong Kong-Macao Greater Bay Area.
The fund was established jointly by Chinese state-owned financial institutions, including Bank of China and China Taiping Insurance, and large enterprises such as artificial intelligence company SenseTime. It focuses on late-stage venture capital and private equity investments in sectors including advanced technology, manufacturing, healthcare and consumer.
RISKS AHEAD
Despite her optimism, Chen identified a number of investment risks in the region, including supply chain reconfigurations as key manufacturing lines serving Western markets shift from China to Southeast Asia, as well as restrictions on China’s access to advanced technology.
“I think this will eventually affect – in the near term at least – factories’ operations in China this year,” Chen said.
The fund would exercise caution about sectors that are net export-related amid signs of a deepening decline in international trade this year due to a global economic slowdown, high interest rates and potential market liquidity pressures.
The fund is also concerned about ongoing problems in China’s property sector.
“We think the residential market is saturated, and China is facing an ageing population over time, so ... we think we will still need to observe China's property sector and see how policy will affect it in the near future,” Chen said.
To create synergies within the Greater Bay Area, the fund would encourage portfolio companies to set up research and development centres, sales centres and Asia-Pacific headquarters in Hong Kong and other parts of the region.
SELF-RELIANCE
Echoing Chen, Ben Cheng, president and chief executive officer of C Capital, said the company was “very optimistic” about China’s consumer market, but that it wouldn’t look at companies that could not survive without foreign markets.
“Given 2022 has been rock bottom in terms of a valuation perspective and also an economy perspective, an entry point this year into the consumer market would make sense,” Cheng said.
C Capital, recently rebranded from C Ventures, is co-founded by Hong Kong tycoon, New World Development CEO Adrian Cheng, former banker Ben Cheng, and investor Clive Ng to invest in early-stage companies.
Ben Cheng said that when it came to investment in 2023, his “only concern” was geopolitical risk arising from relations between China and the US.
“Given the China-US relationship has been quite tricky in the past, our base case is that we can't assume that it will get better," he said. "We can only assume that it will stay the same or get a bit worse.”
That has encouraged C Capital to hedge risk by guiding its portfolio companies to survive on their own, if need be relying solely on customers in the Greater Bay Area and other parts of China.
“If their base case can survive or even grow in terms of size, just relying on our own economy, then that would make a good investment case,” Ben Cheng said.
Describing Hong Kong as a “great incubator” for healthcare and robotics companies, Ben Cheng said he was bullish about the consumer, healthcare and robotics sectors across the Greater Bay Area, naming drone company DJI, artificial intelligence firm SenseTime and healthcare supplier Prenetics as regional success stories.
Greater Bay Homeland Investments' Chen said the fund, similar to C Capital, tried to promote integration between its investee companies and Hong Kong’s capital markets to utilise the financial centre as a funding hub.
Greater Bay Homeland Investments has helped companies such as SenseTime and van-hailing company GOGOX list on Hong Kong's stock exchange. This year it is looking forward to nearly 20 more investees’ IPOs in town, Chen said.