‘When communists are around there is never a bargain’ – Piet Viljoen on China

Counterpoint value fund manager Piet Viljoen joins BizNews founder Alec Hogg as Thursday’s Power Hour c0-host, with the veteran money manager ringing the alarm bells when it comes to investing in China. Evergrande, one of the largest property developers in China, is facing a liquidity crunch that could potentially cause financial contagion in the world’s second largest economy. Viljoen also talks about his exposure to cryptocurrencies, which he sees as a growing asset class in the years to come. Lastly, the topic of environmental, social and governance (ESG) is chatted about at length, with Viljoen outlining the difficulties in measuring it as an investment metric given its qualitative nature. – Justin Rowe-Roberts

Piet Viljoen on the developments happening in China

When the communists are around, there is never bargain – I think that’s the first thing, but that’s a bit of a flippant comment. Seriously, I do think that most people have historically invested in China for the growth. They used to have very high economic growth rates of 8% to 10% to 12% GDP growth rates and that’s come down already 1% to 2% and continues to decline. So if that’s the reason you want to invest in China – for the growth – well, there isn’t any. So I think you need to be aware of that fact. And whatever profits are going to be generated by the privately held companies, might not all follow through to shareholders or flow through to shareholders because the government wants to fund its common prosperity program. So it’s going to take some of those profits, as it has done with Tencent and Alibaba and other companies. It wants to fund its common prosperity program. The final thing is you still cannot rule out nationalisation of some of these companies eventually, which means that VIE structures could come under pressure. So there are huge amounts of headwinds for investing in China at this point in time. And it’s something I would avoid unless you’re a value investor and you see that the state owned entities in China are trading at depressed multiples. But they might just be the only company in China worth investing in at this point.

On the way forward for Naspers:

They couldn’t predict that. And I think in terms of closing the discount to net asset value (NAV), the simple thing to do – but if that is a strategy, which I’m not sure it is – the simple thing would be to unbundle Tencent to shareholders. That would close the discount immediately. I’m not sure they will do that though. But given what’s happening in China, maybe it accelerates that line of thinking. I’m speculating now because I don’t know. But they’re not in control of the Tencent situation. They’re not in control of the Chinese situation, but they are in control of unbundling Tencent and focusing on its other investments that they have made over the past 10 years.

On whether cryptocurrencies are a viable investment: 

I think so. I personally have small investments in cryptocurrency. In the Counterpoint Global Value Fund, I have a holding in a company that invests in other cryptocurrencies, mines cryptocurrency, repairs crypto mining equipment and so on and so forth. So it is very much involved in the whole value chain of cryptocurrencies. So I think it’s got a chance of success. I think it makes a lot of sense. It’s still early days, though. It’s like the Internet in 1998. It might or might not work. Remember those days you had to dial up and get an email, it took you twenty minutes to get a document through email. It’s like that now. It’s still very early days. The other thing that is also true to say is there’s a lot of scams out there as well in the crypto world. So one has to be very cautious and careful about what you do and how you do it, because it’s the Wild West.

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