Nordic Asia Year End Summary with Yining and Jason

2021-02-03Nordic Asia Team
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What was the most memorable events during 2020 according to Nordic Asia?

Covid-19 hit the world economy severely in 2020. Despite the economic impact of COVID-19, our strategy to focus on the domestic market leaders in China has been very well received in 2020. The economic recovery since Q1 2020 in China, has been remarkable and shows the strength of the domestic market along with very effective management of the virus outbreak and virus containment. China is the only larger economy with positive growth in 2020 and the rebound in the domestic market in China has really been among the few positive growth markets during 2020. At same time, during 2020, we’ve noticed a greater increased investor awareness and demand to increase their exposure towards the domestic market in China. During our communications with Swedish investors, we saw a greater demand for Chinese assets and willingness to learn more about the innovative business models and leading technology companies in our investment universe. This is also shown in the increase of the HK stock connect northbound inflows where international investors increased their allocation to China during 2020 to capture the economic recovery in the short term and gain exposure to the domestic consumption market in the long term. For example the trading quota of Midea Group was fully bought by foreign investors, despite our three attempts to increase our portfolio allocation to Midea Group. The popularity of Midea Group’s stock shows the outstanding Chinese companies are highly sought after in the international investor portfolio, which strengthened our confidence to devote ourselves to NA.

What stock in Nordic Asia’s stock portfolio do you think surprised the most in a positive way during 2020 and why?

ZY: I think ANTA surprised me the most among our portfolio. Our initial assumption of investing in Anta is to realize an annualized return of 20%. With our expectation of consumption and economic recovery in the next year after the epidemic, we believe that ANTA will complete our expected returns with a good brand matrix and corporate operational capabilities but the result far exceeded our expectations. From the first purchase of ANTA to the end of 2020, the cumulative increase has exceeded 40%. The company actively promoted online marketing and brand promotion during the epidemic, minimizing the impact of the company's sales revenue by the epidemic. Its good operating efficiency has been continuously sought after by international investors.

YW: I think Xiaomi did a great job during last year despite the global covid shutdown, especially in Q3 when their revenues increased by +34% and overtook apple in that quarter as the nr 3 global smartphone manufacturer. Their international expansion is performing well despite global shutdown at the same time as they are starting to monetize their overseas internet services with significant higher margins than hardware. The share is up 208% % during 2020.

What’s your view on the market outlook in 2021?

The Chinese economy is expected to grow by +8% in 2021 and more than +19% in Q1. For 2021 domestic consumption is expected to grow by +11-12%. The continued strength of the “internal circulation” and focus on continued reforms to expand the domestic market potentials. As for our portfolio, we expect continued strong earnings growth in our portfolio companies in 2021. The median sales growth forecast for our portfolio companies is +23% 2021 vs +20% in 2020 therefore there should be room for sales and earnings growth to exceed current market estimates in this improved market environment. Besides, we believe that the vaccination of Covid-19 will finally solve the global pandemic. The continued recovery of economic activity in the northern hemisphere is therefore expected to boost global economic recovery in H2 2021. However, global interest rates are at a historical low level and despite low levels of inflation both in China and internationally, a reversal of the current monetary policies and tighter monetary policy will have significant impact on investment returns in the short term. Going into 2021, there are many good investment opportunities in niche segments of the market with high growth, good asset quality, high management ownership and favorable long-term investment values. We already hold a number of niche suppliers towards the 5G communication sector that is expected to enjoy a period of rapid growth in the years ahead. In addition, the expansion of increased e-commerce sales-channels through live steaming and short video platforms will open up new growth opportunities for merchants and brands to reach new customer segments which will benefit strong consumer brands and increase domestic brand penetration of certain product categories. In conclusion, we expect fundamental earnings growth based on strong market positions and continued underlying market growth rather than multiple expansions to be the main driver of investor returns in 2021.

What are the key trends investors need to pay attention to in terms of Chinese Investments going into 2021?

We think the following trends will continue and strengthen further in 2021: 1. Accelerated pace of digitalization across all industry chains both in B2C and B2B sectors. 2. 5G transformation to accelerate and reach beyond +20% of total mobile users in 2021. 3. Improved brand perception and mid-high end premiumization of domestic brands. 4. Increased import-substitution driven by increased competition and improved product quality of domestic brands. 5. Increased international expansion by leading Chinese companies. 6. A number of private unicorns will aim to go public during 2021 such as, Bytedance (Tiktok), DIDI (Uber of China), JD Logistics, Kuaishou and Heytea, Xiaohongshu and more. Thanks again for your support and we hope look forward to report on the progress of our portfolio companies and new growth companies in our investment group during 2021.

Best Regards Yining and Jason

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Thomas Nordén
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