Looking into the Future

COVID-19 may lead to social instability in some countries, but the prospects for the China market remain strong for many reasons, says Louis SO, Co-Chairman of Value Partners Group. As a leader of the first and only asset management firm listed on the Main Board of the Hong Kong Stock Exchange, So is about to harness the new opportunities in a post-COVID-19 environment.

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It wouldn’t be a stretch to say that the onset of the COVID-19 pandemic has led to the worst global economic crisis since the Great Depression of the 1930s. The combination of a demand shock, a supply-side shock, a financial shock, and political upheavals, has sent the world’s markets reeling.

While no one can predict how the world’s economies will emerge from the crisis, some experts are making educated guesses based on current economic data. Louis So, Co-Chairman and Co-Chief Investment Officer of asset manager Value Partners Group, believes that whatever happens, a post-COVID-19 environment is going to be very different to anything in the past. “China will certainly be outperforming other markets, though it may not drive the growth of the global economy,” he says.

So believes that there will be a higher degree of government intervention, a greater deal of money printing, very low interest rates, and a much bigger asset bubble. This asset bubble is set to widen the rich-poor gap, and this will lead to social instability, he thinks.  

“At some point, this system will collapse. Going forward, politically speaking, left-wing politicians will gain popularity and they win support. We then think that a redistribution of wealth will happen,” he says. 

So points out that although the last 50 to 70 years have seen a period of global wealth accumulation, there were also periods when wealth was distributed. Such events occurred  because of wars, or because governments allocated resources differently. So believes that this is something we can expect to happen in the world during the next five to ten years. 

On the consumer side, So believes that there will be a contactless economy consisting of a boom in e-commerce and online entertainment. Value Partners Group has positioned its portfolios in a way to benefit from this trend. 

Rethinking business models 

So believes that businesses will have to rethink their business models. In the past, just-in-time inventory management was the norm. But now businesses will have to think about whether they need to build up cash reserves for inventory and supply chain management. “That will also change the mindset of business leaders,” So says. 


So thinks COVID-19 could escalate a potential crisis of capitalism and the free market. The challenges may make capitalism falter, he says. “Providing a much better social welfare system might be a potential solution. Although it may affect the economic growth of countries, it will create a much happier environment for society,” he says.  

So says that COVID-19 has not changed Value Partners Group’s strategy very much. The company is still tapping into what eventually could be the world’s largest market – China. So notes that savings are high in China. “We need to enter this market in order for us to grow,” he says. 

So believes the Sino-US relationship will get worse before it gets better. China is not dependent on exports and does not rely on other countries to grow its economy as it used to. This will drive China into isolation for a while. But China and the US will have no choice but to become friends, partners, and allies again in the end, he says.

China will come out ahead 

So firmly believes that China will come out of the pandemic ahead of other markets. His predictions are based on recent economic data coming out of China which shows a V-shaped recovery trend on both the macro and the consumer level.

According to data for March, April, and May 2020, year-on-year figures show that fixed asset investment was down by 9.4 percent in March, yet rose to 3.9 percent positive gains by May. Retail sales were down by 15.8 per cent in March, but were only down by 2.8 per cent by May.


Even a business like electricity production showed a year-on-year 4.6 per cent decline for the month of March, but returned to 4.3 percent growth in May. 

The same pattern can be seen on the consumer side. Goods like cosmetics, furniture, cars, tobacco and alcohol all experienced a similar V-shaped recovery. 


The data shows an economy that is steadily bouncing back from the pandemic. So believes there are many reasons for this. “China is in a much better position to cope with this crisis [than the West],” noting it is a case of first in, first out. China is benefiting from a huge middle class which has one of highest savings rates in the world. The country had a savings rate of 47 per cent in 2017, and ranked third among the 170 countries monitored by the World Bank. 

So points out that China is now a fairly self-reliant economy, and this has helped it cope with the pandemic. “China has innovation, production, distribution, and also the end-consumer, within its borders,” he says. “Therefore the country is experiencing less of a supply-side shock than other countries.” 

China also has a much more modest stimulus program than other countries. While the US is pumping out a huge stimulus program consisting of around 18 per cent of its GDP, China’s stimulus package is less than 5 per cent of its GDP. 

Bullish on China 

“We are quite bullish on China,” So says, citing  research from a major bank which shows that China is still on track to become the world’s biggest economy by 2030. So adds that several investment themes will be the key drivers of growth, including consumer upgrades, a growing number of high-net worth individuals, technology, and the explosion of 5G. There will also be more individuals pursuing higher education, along with the development of online service platforms and a growing healthcare sector. 


“China is just too big to ignore right now. It accounts for 16 per cent of global GDP, which means we can look at it as a single asset class,” he says. 

So doesn’t expect China to slow down anytime soon. “There are a lot of factors to consider, like how the China-US relationship pans out, and a possible resurgence of the virus,” he says. “Only time will tell. But for now things are looking a lot better for the second half of the year,” he says.  

“China is not dependent on exports and does not rely on other countries to grow its economy as it used to.”
Post COVID-19 Market Outlook
As one of Asia’s largest independent asset management firms, Value Partners has identified five investment themes on China’s market which the company believes will be less affected by the current market risk factors.
•    Consumption Upgrade – Mega Trend and Towards Pricier Brands
•    Technology and 5G – Leader in R&D and Innovation and 5G Opportunities 
•    Higher Education – Strong Demand and Potential for Tuition Hike
•    Online Service Platforms – Current Low Spending and Low Penetration Rate
•    Healthcare – Aging Population and Current Low Medical Expenditure
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