Hello and welcome to The Download. I'm your host, Dave Richardson. And I'm really excited about this one today because we don't get the opportunity to talk to someone who is an expert on Chinese equity markets. And we have the opportunity because she's in town today. Siguo Chen. How's that? Is that even halfway there?

Good job.

She's just being nice. But you're in Toronto, and this is your second time here, or have you been here several times?

Yeah, this is my second time here. Last time was, apparently, the coldest winter for 20 years. That was February 2018. So this time, a much nicer weather. I can't complain.

Very good. People don't come to Toronto for the weather, as you've already learned. But why don't you talk about your background? How did you get into the role that you're in right now? Because we've had some of your colleagues on and other investment managers, and they've come through their work, their career through Canada or the US or maybe the UK. How did you get to where you are, your background, and why were you interested in becoming an investment manager?

Well, I didn't expect the questions to start there, but yeah. I was born and raised in China. When I was young, I was actually raised to be an athlete, so I attended some athletic school for platform diving when I was really young. But then I guess that my parents or the teacher decided I wasn't probably best cut for that. Then I moved on to the normal track and did my study. I did mathematics and applied mathematics in undergrad. After that, a bit of exchange program with the French engineering school, the École Centrale. And then I did Mastering Finance in HEC, the French Business School. To be honest, when I was in undergrad, I didn't think finance was something I wanted to do. But I did an internship in derivative structuring in Hong Kong. And that was the time where I thought, okay, maybe numbers and all these markets really excited me. But I didn't have any financial market background. That's why I applied for HEC. And then I got in. After that, I got a job with UBS Hong Kong as an investment analyst, but that was on the sell side. I spent, I think, four or five years there as an equity analyst for consumer as well as equity strategist. From that point on, I moved to RBC. I was in the Asian equity team led by Mayur Nallamala. I was lucky in the sense that I was hired for this China manager role. So it was a path well-defined. From there, I think we had our success in the product. The performance was really good. I'm not sure whether we can talk about this, but it's something we're really happy about at this moment.

I think we're pretty safe to say that it's good. I think we're okay there. But let's dive right into this. Again, a really fascinating background. The listeners are already saying you're probably too smart to be sitting here talking to someone like me, but we'll do our best to stay up to that level. If we look at Chinese markets this year, what kind of year has it been? I know we hear a lot in North America, mostly this year, about the impact of the tariffs and — for lack of a better term — the battle between the US and China that's going on on many different fronts, but particularly economically. What's your view on what's been happening this year in China? Maybe talk about how well things have gone with markets despite the noise that we hear around the trade talks.

Yeah, I guess it's still fair that the first question being US-China and trade war. But putting this into the context of investing, I think trade war and tariffs were first heard on Trump's first term, and it was 2018. That really created a big dent on the economy sentiment as well as markets. But now, fast forwarding to 2025, what we are seeing is a couple of things. First, the market’s reaction. It's really being desensitized. We hear Trump saying different things every day. I personally find him a very interesting person to hear. He's definitely very refreshing. But for investment professionals, it's good that we now can take his words not word by word because he changes his mind so much. To be honest, raising tariffs on China from 40% to 100%, 100% to 400%, how is that different? The market stopped reacting to that, which is a good thing for the Chinese market as well as the US market. On top of that, this year, China's export actually was one of the best contributors to China's GDP. Yes, there is a bit of front-loading, there is rerouting because US reduces its import from China. But US imports from Mexico and Vietnam, and they import from China. It tells you two things. First, market is not reacting negatively to this anymore. Secondly, the real economy is not having such a negative impact. Those are good for China. But we have to realize that US-China, this — whatever you call it — battle or consistent rivalry, that's never going to stop. And this time, it's not because from my position, I'm China manager, but this time, I think, fairly speaking, it's the first time China was on a — what do you call it? — relative strength level speaking to the US. It's the first time China wasn't in a much weaker place. This is partly contributable to some of Trump's tactics that were probably not so thought through, but also the fact that for China, one credit you have to give to Chinese government is that they have very clear roadmaps. They have their goals set and they have the ways they want to achieve their goals. Whether the goals are right or wrong is another story, but they are usually very predictable. Those have made things easier for investors altogether.

And then Trump is completely unpredictable. You have this clash of predictable, unpredictable. I guess many people think of Chinese strategy as always playing the long game versus Trump. As you say, he wakes up in the morning and thinks one way, and then he wakes up the next day and thinks another way. What's fascinating to watch, as you say, it's so planned out, they know the strategy, but then everyone knows the strategy. As you say, it's fairly easy to predict what the strategy is going to be, what the approach, versus you've got someone who's completely off the cuff and unpredictable and how those two approaches clash. As you say, from your perspective, as someone born in China and now investing money and obviously aware of what's going on economically around the world, who do you think has the advantage in terms of the approach?

I think if we were looking at two individuals, that's a different story, Trump versus Xi. They are such opposing different characters. But we are not talking about individual to individual. He is standing at a center stage of a country as a backdrop. And the same with Xi against the backdrop of China. I wouldn't say which one is more advantageous, but we got to realize that the world is shifting slightly more towards less of a... sorry, what's the word?

Superpower.

Yeah, that's probably the good way to describe it. I think this time around, Scott Bessent revealed that feeling in his discussion, debates with the Chinese trade representative as well. But we can hardly take comfort in that because when trade talks happen, it's almost best that both sides don't show their last card. But now China has shown the rare earth card, which has taken the US administration back a little bit. But if you ask me, there's one thing that Chinese government probably could have done better. Purely from a tactical perspective, they could just do that to US instead of doing it to the world, including Europe and other countries, they probably could align a bit more. Now, they are trying to gain more friends rather than alienate them. So that's that. We're talking about two big superpowers, and there's always going to be some missteps by each side. But there is this term called brinkmanship, or the balance of terror, because both sides have some nuclear options. We're not really talking literally nuclear options, but economic nuclear options. That makes both sides a bit more cautious when they pull trigger at each other. I think we've gotten to a stage where both sides are now in a calm phase. We call it a truce. Even if you look at during Cold War, the Soviet time, there were 10 years, a decade of detente, with basically people dialing back. There was economic growth, there were better trades. I don't know how market did back then or was that a significant factor of society or not, but things were calm for an extended period of time. I'm hopeful that we are probably in such a period.

Yeah, more of a truce. I grew up in the Cold War and I’m familiar with the concept you were talking about, which is mutually assured destruction. That was from a nuclear war perspective. The US and the Soviet Union or the Western allies and groups of communist countries. But now China and the US would certainly be in the same place. We talk about it militarily, both have the power to destroy everyone, each other, the whole world. But unlike the relationship with the Soviet Union — because that was an economy that wasn't particularly strong; it wasn't a particularly diverse economy — what's different is that the relationship between China and the US is symbiotic in a sense. They need each other. They're better when they're working together in some form or even competing to drive each other to be better. They do need each other. The truce is a good thing for the global economy. Where does it leave China? We sit here today. What's your view on the Chinese economy? Obviously, we've had 30 years of remarkable growth, and now the law of large numbers kicks in. You now have a population that is likely going to shrink instead of being the biggest population in the world. It's number two now. You've got a place that was the cheap place to manufacture, and now it's no longer the lowest cost, although there's obviously some advantages to manufacturing in China, and the supply chain still largely runs through China. But where does China sit today and what do you think the next 10, 20 years looks like for China as it emerges, as you say, an equal with the US?

It's interesting you draw the parallel of US-Soviet Union and US-China. Because back then, Soviet Union, or Russia today, is always a country that's rich in resources, be it oil or any sort of coal or materials. So this might be a more simplistic way to describe it, but for this type of resource-rich countries, it's almost better for them in a chaotic war-type of a world because the asset price would be high. But for China, it's a bad deal. China is an export-oriented economy. If you are in a deglobalization world, a world full of wars, it's bad for them. It's so clear. China should have never played the Wolf Warrior character, and now they realize that. Thank God. It's good to realize that. Now, back to the China's economy, there's definitely headwinds. That's so evident that if you look at Chinese market for the last three years, it's a good reflection of the economy. We are now still facing a deflationary environment. The property is still under pressure, but the manufacturing is doing very well, and exports are doing well. I'm not a macro expert and we all know that GDP numbers are subject to discussion, but on the long term, I think, one thing we're sure is that despite the demographics are not as good as before, we have a lot of efficiency gain. That's from the innovative sectors in China. Now, people know about EV. People know that China is doing well in the renewable energies, the solar, the wind. China is doing very well in power grid. Everybody, the world is amazed — and truly, me personally, I'm really amazed — with how AI is changing our world. I remember first seeing ChatGPT at end of 2023 and thought, this is great. You can write a poem. You can tell the ChatGPT to write some poem in Japanese and in English. They did a good job. And look at where we are now, the things they can do. It's all from US. US is an amazing country where all of this innovation can happen. But China is a country that perfects things. It gets things done. China had DeepSeek, I'm sure you are familiar with. It's a more efficient version. I wouldn't say it's head-to-head or shoulder-to-shoulder to ChatGPT OpenAI, but it's the China almost cost-saving version of what US has, and at the same time with a constraint of all the chips it can use because of all this various ban of chips that US is putting in place. China has a lot of room for innovation, and that's going to be the next driver for China next 10 years or even longer, 20 years. Productivity gain is always going to be the primary driver for society. It should be, in best scenario, coupled with population growth and working force. But we are in a world now, if you look at more developed countries, where we're not seeing that. So that is a problem more universal. We're seeing a ubiquitous question everywhere. It's not China. But that is the question China has now. So in the long run, I'm optimistic for China. That probably sounds more credible. I haven't been positive for China for the past three and a half years. With that view, that's how we position our portfolio. That's why our portfolio outperformed a lot of our peers by a lot. I'm saying I'm more constructive now for the long term and medium term. Then I hope that is at least a genuine thinking and reflection from my perspective.

Yeah. That productivity and efficiency gain. Perhaps China is in a better position than some of the other large economies in the world to actually implement and take advantage most efficiently. The ability to manage an economy the way the Chinese economy can be managed versus where you see the political turmoil and all of the issues you have in a country like the United States puts them in an advantage to take the AI and get it out into the marketplace and actually gain the benefit of it earlier than other places.

Absolutely. And I think for China, now the most important question is that it needs to reduce a lot of the overcapacity it currently has. And Chinese government is working on that, finally. For example, last year, the word «deflation» wasn't really allowed in publications. But now they're saying, okay, it is a real issue we need to address, and here are the ways we want to address it. Anti-involution and to stimulate consumption, and all the things you can think about. Chinese market is by far the most policy-driven market. It is very big. It's by market cap just next to US, and it has 7,000 stocks. I would even argue it's deeper than the US market. Another thing I would mention is that because of the depths of the market, as active manager, you don't need the macro, almost. You can just pick the company that is outperforming everyone. We have a company that's still growing 60%, KGA, with a very high ROE, a 20 to 30% ROE, and only at teens multiple. Now, you can't really find that profile elsewhere. But because we have a lot to choose from as active manager, I think that's something that's valuable that this market can offer. On top of that, I would mention that Chinese market has the lowest correlation with global and the US. If you're really thinking about diversification, Chinese MSCI China has less than 50% — I think it's 48% correlation with global — and US has 98%, and Japan has around 80 to 85% correlation. EM has around 80%. And China has less than half of that. If you want to — what's the expression? — put your eggs in different baskets, here is an option for you.

Yeah, and that's really the biggest benefit of looking at China from a Canadian investor perspective, that diversification. Then I guess when we sit here in Canada and look at China, we just see that enormous potential for growth. Then as you say, if we look at a macroeconomic level, the growth story isn't the same as it was 20 years ago, even 10, maybe even 5 years ago. It's a much bigger, much broader, much more diversified economy than it was back in the 1990s. But there's some great companies there. And so the approach that you're using is more to look company by company to find that growth, but you're still able to find it, relative to, say, the US. And you look at some of the technology stocks in the US that have excellent growth, but their valuations are stratospheric, and everything has to be perfect. If I can find the growth at a more reasonable price, there's a great attractiveness to that. As you say, the market has been a little bit disappointing over the past three years, and now we're starting to see it pick up steam.

Yeah, absolutely. To give you another example, even in the most disappointing sector in China, which is property — and I assure you, China property is the worst investment for the last three, four years as a major asset class — it's down 30 to 40% in the past three to four years. Any other asset class, I'm sure, did better than that. But even in this sector, we have companies. I'm not sure whether we can name them.

Sure. You can talk about a specific company.

For example, CR Land. It's had a CAGR of mid-teens to 10% return. That's the total return. And that is not even a random company. It's the biggest Chinese property company. So even in the worst sector, you can find easily. I'm not talking about small cap or a sporadic company in the whole sector. It's just one of the largest Chinese property companies, and that's still generating very decent return. And that's giving you 4 to 5, 5 to 6% dividend yield. So, yeah, definitely it's a market you can do a lot of bottom-up stock selection.

And so if you go to maybe the sectors that you like, even more, what would be the sectors that you're really excited about? Maybe you could give an example of a company that Canadians wouldn't even be aware of, but that is a fantastic investment for you.

I'll give two very quick examples. One is an IT hardware company, Innolight. The stock has gone up six times in four months. We, fortunately, hold them, and they are the biggest supplier in a type of connector for NVIDIA, and they have dominance in that category, which you can understand. Suppliers to NVIDIA with dominance is going to have higher sensitivity or better performance than NVIDIA itself. It's a case in US, and it's a case for China. But of course, we have a lot of risk limit, so we can't let the position run six times all together. We have to manage the risk, but we generate a really good return from that stock in our portfolio. So that's one of the past experiences. The ongoing example I would give is a company called CATL. It's the biggest battery maker in the world, and it's leading the competitor, the Korean or the Japanese, by a large amount in terms of their technology, in terms of their cost curve, and in terms of their sheer size, the capacity they can offer. But of course, CATL, their supply to US is limited. But again, I don't know how, but this is also linked back to AI because energy storage, everywhere you need to have renewable energy. But when you think about renewable energy, it's wind or solar. But these guys are not stable. They are not like coal power or nuclear. You have a baseload and it's constant, it doesn't change. But wind, it comes, it goes. It's not the same intensity. And the sun, the solar power, daytime, there's a lot, and at night, there's nothing. You really need something, a very strong power grid, and also energy storage for this type of renewable energy. CATL, they don't just make battery for EV, electric vehicle, they also make energy storage system for what we just talked about. You can understand why they would be in great demand, their product, because they are truly the best, and the area they are in are really booming. They are trading at only 20 times 2026 earnings. It's something that I think it's almost a perfect poster child that you can own, you want to own. These are the big cap names. Of course, there are more small and beautiful ones. The smallest things that we can own, those are also very good targets that we look at. They're very interesting in different sectors.

Yeah, that's amazing, the multiple on that stock with the type of growth you're talking about, the position it has in the marketplace as a leader in that battery space and energy storage. Energy storage is part of what Tesla is trying to do. Elon Musk, the EVs, the cars, the batteries for the cars. But it's also ultimately, we really get to this, the future of energy is going to require that immense amount of storage. Getting to the best battery or the best storage capability is really important. But you pay multiple times more for Tesla than what you're paying for CATL, which is what makes China so interesting, just from what I'm hearing you talking about it.

They're one of the key suppliers for Tesla.

So if I'm sitting here as a Canadian investor and I'm thinking about going, and I hear you talking about some of these exciting companies with great growth, maybe better valuations than some technology companies in the US or Canada, what would stop me from going and trying to invest myself in the Chinese market? Because I imagine it's not like investing here in Canada or in the United States. The nature of the market is a little bit different, is it not?

Yeah, I think that's a very good question that any investor should ask themselves first. What is the downside that you're potentially taking? Before asking the upside, what is the downside? What could potentially hurt you in this? I'll try to be as objective as possible. So first thing is you have to think about diversification. It’s the first reason you should think about when investing. What's already in your portfolio? I think the chances are for a normal Canadian investor that you probably already have exposure to domestic markets which is linked to US, and you probably already have a lot of US investment. I'm talking about the equity space, of course. You would have some bond and then have some income-type products. But for equity, you want something that's balancing out your US portfolio. Like I said, diversification is one reason to own. But that's the positive. Also, another positive I would highlight is that Chinese equity market, the index has done 30% this year, and our fund, it's up close to 50%, outperforming the index. But that's really off a low base because the Chinese market has struggled for a long time, and we're finally coming back. It's a low base. I do see a much longer track going forward, but bear in mind, I think you shouldn't get cold feet because this year there is already some type of rally. All markets have had good performance, but actually, Korea — Kospi — has had 80%. Those are the positives. Before I tell you what I think you should also think about is that there is geopolitical aspects of this. And people would often ask, what about Taiwan? What if there's a war or something? That's going to take three days to talk about this issue. And anybody can talk about all they want and assure you anything, but in reality, it doesn't matter. One thing I can say is there's a spectrum of eventualities that we're looking at, and a kinetic war is a very small part of it. It's almost impossible, to my understanding, of the Chinese military's capability and the willingness of the leadership. It is really something that they don't want. There is a political deterrence. They need to all the time talk about it as much as US would make it a big deal. But the reality of it happening is so small. And even when that happens, you've got bigger problem to worry about. Taiwan supplies 80% of the world's advanced semiconductor. What would happen? What does that mean for US? What does that mean for EM? What does that mean for global growth? These are the questions not just investors need to think about. All these leaders, they have to think about it. So it's not a question that will be taken lightly by any sides. I can talk more about the war games and the China's military capacity, capability, and everything. But that's technicality. The reality is, it's not a massively likely outcome. There is a risk you might think about, but I think it's something that's not essential if you're thinking about investment.

Yeah. One of the most fascinating things I think you shared in terms of a viewpoint that we certainly don't hear out of the media here in Canada or what we get that flows across the border from the USA — certainly not from Fox News or any channel like that — but the idea that, yeah, the Chinese are exporters. Conflicts around the world hurt that economy. So again, you've got to put up at least a front to say, hey, back off. Don't take advantage of me. But you ultimately want everyone to get along because that's the biggest benefit for you.

Yeah, exactly. Maybe an interesting side story is when you do read a memoir of Xi Jinping, and you compare him to Mao Zedong, China's first iron-handed leader, or you think about Vladimir Putin, all of them, they are quite different. And one thing I can say is Xi is not as pro-war as you think. And he has much more to lose if he's decided to step in something and that doesn't turn out. The latest example is the Russia-Ukraine war. Think about how many things can go wrong. As powerful as Putin is. So, yeah, all of that. I think it's a theoretical concern, but it's really not.

Yeah. Why I was so excited about having you on the podcast was just that getting that different perspective. In Canada, of course, we have our own news sources here, and of course, we the internet and all the other sources that everyone else has around the world. But we have an immense amount of influence of media from the US. It typically characterizes China in one light and creates that fear around not just China itself but even investing in China. I think you've really shared an interesting perspective in terms of how it helps you from a diversification standpoint because you don't have the same correlations that you have in a lot of other markets around the world. Obviously, the potential to harness all the power of, as you say, the ability to perfect things or to master things, which creates that potential. Maybe the other thing that we haven't talked about — although you alluded to it at one point in your initial comments — is one of the other fears that I think a lot of Canadian investors have about investing as China is, are any of the numbers real? We talk about large companies, their accounting, are the numbers that they're putting out real? Then you get down into medium and smaller size companies. Is this a safe place to play from a Canadian investor perspective?

It's a very fair question. I think two things I want to talk about on this. One is that the numbers are published by government. Take it with a pinch of salt. But in the US now, this is not to point fingers, but we don't have government shutdown. We don't delay the inflation, the non-fund payroll numbers or anything. Now, the GDP numbers in China or other jobless numbers or the birth rate, these numbers, believe it or not, there is a way for us who cares to work out. And Chinese government care a lot about faith. There are certain things they want to say. They want you to read between the lines, read the tea leaves, but the truths are to be found. If investors want to look for the truth, the truth is there. So for us, it's not any difficulties. As professionals, we do read the tea leaves. This phrase they use, that phrase they use, what does it mean between the lines? And the numbers? I would say, leave this to the professional investors, and they would do the best they can and then find what's the truth in this narrative. Second thing is, I would say, the Chinese companies. Now, I don't want to be cynical, but there is always a risk to invest in EM market versus DM. But also, there's Enron, there's also Australians, a lot of the frauds, small caps. In EM, there's obviously a higher risk. But for China, that risk, actually for the investment, for the time I've invested, we've never really come across an issue with that. Again, I would allure back to the fact that we're looking at 6,000 to 7,000 stocks, and a lot of them are with longer than 30 years history. A funny and interesting fact is some of the SOEs are actually good. State-owned enterprises. If a SOE is good on paper, that means it's actually good because they have no incentives to fabricate any numbers, to make the margin look better or whatever. An SOE is sometimes a good investment opportunity. Quite contrary to some of what the people might think, that SOE is sluggish, they're not effective, they're not efficient. But no. A SOE, there's at least zero fraudulent accounting risk. That's another angle to look at this.

Yeah. I think one of the main reasons that we have this podcast and we have guests like yourself on is just to highlight the value of having a professional investor. It's not just in China, it's in many markets, but a professional who, by definition, if they're a professional, they are paid to know what's happening in that market, paid to be able to, as you say, read the tea leaves and read between the lines to make sure and to validate that what's happening in that company or happening economically is legitimate. I think particularly for Canadians who want to invest in China and other emerging markets, I think it serves them well to look and perhaps rely on someone like you to find those opportunities instead of trying to do it themselves. You've highlighted why you want to be in China, but then there's how you're going to approach it. Again, being able to lever your expertise into that market, I think, is really the great opportunity for Canadian investors.

Yeah, absolutely.

Well, thank you so much for agreeing to do this today. I know you're in on a fairly quick visit and busy all the way through, so to take a few minutes to sit down with us. Just fascinating stuff. I learned so much, and I hope you'll agree to come and join us again because I've got a million more questions, and it was so interesting getting your perspective. It's a perspective, again, that we don't necessarily get enough of, I don't think, here in Canada in general. Thank you very much for your time.

Thank you, David. Happy to be back anytime.

Thank you.