In his first public letter in 10 years, South Korea’s value investment guru Chen Kang in March urged fund investors to remain unperturbed by the coronavirus uncertainties and search for where purchasing power would flock to in the post-coronavirus era.
The investor with over 30 years of experience in stock investing added this was a way of targeting value creation even in trying times.
“Investors should keep an eye on how daily life evolves, because that’s where the future of business lies,” Kang, who leads Assetplus Investment Management as its chairman, said in an interview with The Korea Herald.
“In times of economic recession, we need to define where we think the profit will be truly generated, through industrial restructuring, corporate innovations, massive investment in tangible assets or changing patterns of consumption,” he said, adding that he has recently been focused on consumer spending changes.
Overseeing some 1.45 trillion won ($1.21 billion) worth of assets, Assetplus Investment Management has heavily focused on long-only stock investing strategy -- referring to a style where the investor bets on undervalued equities’ growth.
For over two decades, Kang has been leading the investment house that has so far created four investment trusts. They target Korean companies, Chinese companies where at least 30 percent of revenue is generated from the Chinese market, companies across the globe, and most recently, companies in Southeast Asia.
All four funds have relatively high exposure to companies dedicated to consumer goods -- both discretionary and essential. This stems from Assetplus’s focus on the areas where the new rich will spend.
Its global equity fund has been betting big on luxury goods makers, including LVMH Moet Hennessy Louis Vuitton, Hermes International and Kering, according to disclosures. While their values have been suffering a recent COVID-19 decline and Assetplus’s cumulative return has narrowed down in such stocks, Kang showed an unwavering belief in their rebound given that the demand for high-end products is unlikely to ebb away due to the coronavirus.
“Can an economic downturn eradicate the rich? The wealthy will always exist,” Kang said.
“If rich people become poor, the new rich will come in to take their spots. Therefore, the demand for high-end products will always be there.”
Moreover, Kang has paid attention to something he believes consumers will increasingly spend money on: experiences.
“Previously, rich people sought to take possession of valuable assets, so they were willing to spend money and time for possessions. The new rich, however, tend to spend more on experiences related to intangible value than things they can possess,” Kang said.
This resonates with the motivation behind the investment house’s move to create Southeast Asia-focused funds, since the purchasing power in China is expected to be a boon to neighboring countries’ growth.
“This emerging pattern of spending by the new rich will provide fresh impetus for Asia’s economic growth.”
While drawing more consumer spending improves income, companies’ sustainability and scalability have been under Kang’s radar.
This is how Kang has been ramping up investment in “platform businesses,” buying stocks in such foreign blue-chips as Amazon, Microsoft, Apple, Alphabet and Netflix, as well as China‘s Tencent Holdings and Alibaba Group and Korea‘s Naver and Kakao, disclosures showed.
“The new platform economy powered by mobile networks is entirely in a new shape and much more scalable than traditional platforms,” Kang said.
He added that it is an asset manager’s responsibility to take advantage of the investing opportunity triggered by an industrial seismic shift in the turbulent times, like the way the platform economy had been redefined since 2008, or in the wake of the global financial crisis.
“Let’s say there is a hypermarket. It used to describe the platform economy as it was responsible for matchmaking consumers and suppliers within a physical space. Now, the digital platform has taken over the traditional platform, and the term ‘platform’ is being redefined, and so is its valuation,” Kang said.
As a seasoned value investor, Kang has focused solely on the stock’s anticipated return and risk.
He is less keen on other methods to nurture a portfolio firm’s long-term value, such as shareholder activism or taking environmental, social and governance into consideration. Kang said Assetplus was unlikely to engage in activism unless Assetplus was “willing to act against a company’s discriminatory practices.”
While it is desirable that more value investors enter the Korean market with diverse strategy, he said consistency in asset management is key to maintaining investor trust.
“Oftentimes, (a value investor’s) investment style loses color just because their portfolio construction does not bear fruit in the short-term,” he said.
“As a value investor, he or she should not be distracted by short-lived market fluctuations. Otherwise, the core value will be gone.”
Kang earned a bachelor’s degree in Hankuk University of Foreign Studies in 1989, studying management information systems, and a master’s degree in business administration at Seoul National University and Fudan University. He was the only Korean investor to be featured in “The World‘s 99 Greatest Investors” authored by Stockholm-based investor Magnus Angenfelt.
By Son Ji-hyoung (email@example.com