Quick to get the pandemic under control, with stronger and more decisive action than the majority of other nations, China’s economy has recovered faster and stronger than most. While challenges remain, China continues to diversify their economy and the spending power of the middle class continues to grow. There are many reasons why the outlook is bright for China, not least the most recent Five-Year-Plan with an increased focus on sustainability. Opportunities abound for long-term investors to capture the returns generated by businesses that benefit from these structural changes.
Going back to basics, the price of a stock is determined by two key factors: 1. The future cash flows of that company; and 2. The price investors are willing to pay for it. At LGM, we do not categorize ourselves in the value or growth camp; our goal is simply to grow the capital we are entrusted with (yours and ours) as sustainably as possible by investing in high-quality companies. In this quarter/year end, we want to walk through some of our considerations around investing and how we see our opportunity set evolving. We will finish with our annual ‘lessons learnt’ section, this time talking broadly about errors of omission while specifically highlighting two names that have been brought up by both current and potential investors.