|Chief Investment Officer Jim Lowell had this to say:
An astute question, thoughtfully worded. China has been on our investment radar for years, and increasingly so as its economy has grown to become the world’s second-largest, its markets have become more open and its regulations and regulators have become more transparent and accountable to the global marketplace.
Overall, given China’s outsized population and its transition from an agrarian to an industrial economy, as well as its evolution toward a consumer-driven society, we think the investment opportunities (companies doing business with China and Chinese companies doing business beyond its borders) are vast.
But this is China we’re talking about—we know that such outsized opportunities come with outsized risks, including China’s leaders imposing restrictions on some of its most innovative companies and “reeducating” its entrepreneurs. Both actions are more than warning shots—they’ve had material impact on such companies’ prices and an existential toll on their business leaders.
Our current direct exposure to China, then, is so small as to be nearly de minimis, but every investors’ indirect exposure to China continues to scale up—it is difficult to conceive of anything from an electric toothbrush to a car to a supercomputer that isn’t impacted by China’s interests, economic activity and reach.
So, we look at data, read reports, listen to fund managers and converse with each other about China as often as we discuss any major macro theme. We’re looking at what each reversion to their prior hardline version of communism means to investments there, here and elsewhere. We’re cognizant that the harder a line China takes, the greater the backlashes against its government could be (most likely first manifested in trade relations).
Shutting down—rather than keeping open—lines of communication between the world’s two super-economies and superpowers, would be dicey, as would be China reversing course on its free-market progress. But rest assured that we won’t just hope the old diplomatic line holds true: So long as we’re talking, we’re not fighting. We’ll stay informed about what’s going on inside the world’s second-largest economy as it relates to our own, and what’s transpiring regarding the world’s second superpower.
My apologies for an ambiguous response, but there’s unlikely to ever be a simple, clear answer to your excellent China question. Most importantly, from our investment perspective, investing alongside you and with our thoroughly informed and deeply experienced fund managers, we have the highest conviction in our ability to access opportunities in any marketplace we want to explore or remain in. And we may want to do both, with regard to China, over the span of the next decade or two.
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