Winnie Chwang of Matthews Asia Tackles China’s Vast Market

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Editor's note: This article first appeared in the Q1 2022 issue of Morningstar magazine. Click here to subscribe.

Winnie Chwang comanages Matthews China MICFX and Matthews Pacific Tiger MIPTX, both of which have Morningstar Analyst Ratings of Gold, as well as Matthews China Small Companies MCSMX. She joined Matthews Asia in 2004. Chwang earned an MBA from the Haas School of Business, University of California, Berkeley, and received her B.A. in economics with a minor in business administration from Berkeley. She is fluent in Mandarin and conversational in Cantonese.

1. How has investing in China changed over your career? The market has expanded from 2,000 to more than 5,000 companies, and the types of companies have changed as China shifts to a knowledge-based economy. These are exciting companies with once-in-a-lifetime growth opportunities.

2. Do you expect China's growth path to slow? China cannot grow sustainably at the speeds it used to, but the quality of growth is improving. We expect less cyclical and more secular growth, as more innovative sectors drive China's economy.

3. Is China's push for "common prosperity" good for business? Common prosperity will help grow and develop China's next generation of middle-class consumers.

4. How do you manage regulatory risk? Some of our companies, such as Alibaba 09988:HK, have been affected, but I trust these large Internet platform companies will be able to withstand regulatory changes. We believe that these regulations are part and parcel of a longer-term effort to develop industries. Managing that risk means being aware of the sectors that the Chinese government wants to support, including renewables and semiconductor technology.

5. Is China handling the Evergrande crisis well? It should have been dealt with a long time ago, as it was known that Evergrande's balance sheet was inflated. With the government stepping in, I think it will be managed effectively. The tightening liquidity environment may lead to more developers facing liquidity or solvency risks, but I don't expect the government to step in like they did for Evergrande because they want to see healthy industry consolidation.

6. Is escalation around Taiwan a risk? This is still a very low-risk probability. For one thing, Taiwan is home to advanced chip manufacturing. Any escalation might truncate China's access to high-end chips, which would backtrack the technology advancements the country has worked so hard to attain.

7. What is the best way to invest in Chinese companies? We invest from the bottom up—first identifying the best businesses across different exchanges, then considering criteria such as valuations. Currently, Hong Kong is more attractively valued, and more mainland China participation in the Hong Kong market might help narrow the discounts. China's A-share market will still be an important part of our universe given its depth and breadth of opportunities.

8. Where are you finding lesser-known opportunities? Over the past two years, a technology self-sufficiency drive resulted in greater willingness to use locally made goods, which benefited smaller local tech companies. This drive is now extending into areas such as automation, medical devices, and specialty chemicals, which creates opportunities in the small-cap space.

9. What's the best advice you've received? To invest across all sectors. It's tough, given the size of the Chinese market, but you often have to look where no one else is looking to find gems. I view every day as a workout: If I haven't put in the effort to feel a bit uncomfortable, I probably haven't succeeded in learning more that day.

10. What is your favorite way to spend a day off? I enjoy cleaning and refreshing my home when I have a day off. This is somewhat therapeutic and helps me think better. I usually then end the day with prepping a home-cooked meal and inviting friends over for dinner.

Laura Lallos, managing editor of Morningstar magazine, interviewed Chwang in December.

Photography by David Lees.