Sand Hill's Chief Investment Officer, Brenda Vingiello, CFA, joins Jenny Harrington on “Halftime Report” to go over their most recent portfolio moves. Brenda's commentary begins
The Dragon’s Evolution
Published Date : October 19, 2015
Over the centuries, the Chinese economy has been through many transitions. Before the isolationist policies of the 17th century, the country actually enjoyed the position of being the world’s second largest economy. However, the collective decision to not participate in the industrial revolution proved to be detrimental and by the time Mao Zedong died in the 1970’s, the country’s ranking had been reduced to number nine. Through economic reforms focused on opening the country to foreign trade, investment, and new technologies, the Chinese government successfully orchestrated a change in course and by 2010, it had regained the position of the world’s second largest economy. Today, following 30 years of growth that was greatly impacted by investment in infrastructure as well as global trade, China’s economy is experiencing another transformation and has become the most compelling consumption growth story in the world.
The recent focus on the extreme volatility in China’s mainland stock market, a modest devaluation of the Yuan, and slowing industrial activity, has caused many to question the sustainability of China’s growth. Following 30 years of double digit expansion, the country’s economic base is so large that a 6% growth rate today generates more than double the contribution to global output that a 10% growth rate did just 10 years ago. While industrial growth peaked several years ago, the consumer economy has continued to gain momentum over time. The services sector, the property market, and retail sales are currently growing at a double digit pace, which is supportive of a shift toward consumption. In fact, consumption accounted for 60% of the country’s GDP growth during the first half of this year. With a population that is more than four times that of the U.S., China will likely become the number one economy in the world before the end of the decade.
Our view is that consensus opinion has severely discounted the long growth cycle facing China as the country evolves. Robust growth in wages combined with very little inflation and low levels of consumer debt have set the stage for continued progress. Not only have these elements improved the overall standard of living for millions of people and thus increased discretionary spending, they have also increased the cost of doing business in China. This has led low-end manufacturers to move production to neighboring countries where labor costs continue to be very low, while jobs that require a greater level of skill have remained in China. Government spending has also supported this evolution as education, healthcare, and environmental protection are now top priorities. As China’s workforce becomes more highly educated and compensated, this should continue to fuel growth in consumption and services, despite having to work through this mix shift in underlying economics.
At Sand Hill Global Advisors we monitor and evaluate global investment opportunities as part of our investment process. Several of the managers in our international equity allocation focus on many of the themes mentioned in this commentary, including investments in companies with businesses tied to the Chinese consumer, increased levels of automation in Chinese factories, and environmental clean-up and protection in China. As China’s economy continues to mature, we feel these themes should continue to provide growth and create value for investors for many years to come.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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