How are you and your team analysing the developments in China? Does it represent an opportunity to look at China because not just education, but this correction is affecting all the other non-education and technology companies also? You have been running this fund for some time.
I will come to the fund specifically and education separately but we run the Edelweiss Greater China Fund. It has been a popular fund, run in partnership with JPMorgan Asset Management which has a local team based in China and a lot of the insights I will share come from there. Over the last few days, we have seen significant news flow but it is our belief that these pressures are transitory.
In fact, we have had regulatory overhang in China not just in technology but also at some point in sectors like pharma. We believe that the regulatory overhang does not impact the long-term corporate trends, the culture of innovation and the desire for entrepreneurship.
When people are talking about Chinese regulators, they are taking a one-size fits all universal approach to the whole China story. It is not in our view. Given the US-China rivalry, it would hardly be in their interest to destroy the tech industry. So that is the first comment. The moves are more in line with building a more resilient and level playing field which allows competition to thrive. If you are dismantling companies, you just want to make sure that the next cohort also has some space to flourish.
We think that the move is less drastic than people think and it is also not out of line with what is happening in the west. Coming to ed tech, that is a separate issue altogether. Broadly what China is trying to curb is inappropriate use of market power, certain exploitation areas, any kind of monopolistic behaviour, data security issues, etc, and yes, and we can come to this also. We believe that in some places, this will open up valuation opportunities in specific companies.
Your Greater China Fund has got some of the best names including semiconductor companies. They are in a boom period right now because of the shortages; insurance companies, biologics, healthcare companies are also included. It is a great regional fund!
I will make a few comments. One, we run a diversified fund and so technology is not the only theme that we play in the fund and as you correctly said, even within technology there are themes that are very positive like semiconductors. Software are currently beneficiaries of import substitution. The financials or consumption stories do not change. So tech, health, consumer stocks continue to be there. We do not have any exposure in any kind of education technology company. We believe that that space and the regulatory action in that space is completely different because they are trying to protect education pricing in China.
But we fundamentally believe that if you look at companies like Meituan or Alibaba, the fundamentals have not changed but they are available at valuations that are back to three-year lows now. That is posing an opportunity for investors interested in China. Quite frankly, if you are an emerging market investor today, you already have an India allocation. China is the other major market that you have to have an allocation to.
Indian markets are in the middle of a very nice rally. What are your thoughts on the kind of valuation, especially in broader markets versus the growth and earnings quality which are being reported?
Various comments being made on the market and I think a lot of the valuation commentary has also been made on the primary market. While markets definitely are not cheap, the last two quarters of earnings have actually shown a reasonable positivity and the primary market is booming. We also run an IPO focussed fund in the domestic market. What is giving us a lot of optimism is the fact that a lot of new business models are coming to market and are being accepted extremely well. Ultimately, the fundamentals will start playing out, whether it is in India or China. The primary market actually gives us a lot of optimism in India.
