We have the pleasure of interviewing Mr. Du Yinliang, the CEO of Prescient Investment Management China. This is part of our series profiling professionals of Chinese descent in the financial services sector in South Africa. Your full name? Age now? Liang Du, 37 What has been your experience? CEO - Prescient Investment Management China Limited What do you do? Business development strategy, investment strategy. Your area of expertise? Investment management What is your place of birth? Shanghai, China When did you immigrate to South Africa? What brought you here? I went to Zaire in 1986 and went to South Africa in 1990. In the 1980s and 1990s, China was still a very poor country. Parents want to go abroad to help their children have better opportunities. Since my aunt married a Zairian resident, our family went to Zaire. Zaire had a huge coup in the 90s. During the riots, the first plane to leave Zaire was to South Africa. I stayed in South Africa ever since. Where did you study, and your qualifications? MBA (University of Cape Town), B.Bus.Sc – Actuarial Science (UCT) Why did you choose your line of studies? I didn’t know what to learn when I was young. I was doing well academically. I heard people say that UCT is the best university in South Africa. B.Bus.Sc-Actuarial Science is the most difficult undergraduate. As a young person, I don’t know what actuarial science was, let alone finance. Anyway, I thought to myself, I would learn it first. Fortunately it suits my nature. How did you get into the financial services sector? At the University of Cape Town, the boss of Prescient Investment Management was a professor of finance. In the Honours year, he was my supervisor for my Finance Honours project. The topic was how much money does a person need to retire? At that time, most of the students who studied actuarial science went to the insurance companies, I originally planned to go to Old Mutual. After completing the research, he said he liked my way of thinking and asked me if I wanted to join his company. I joked by asking for a salary doubling Old Mutual's offer, unexpectedly he agreed. I have been with Prescient for 15 years, I have found that I like this industry very much and it suits my abilities. The company is also very supportive of entrepreneurship. What are your hobbies and interests in your spare time? Reading, playing squash, playing video games. How do you see the future of South Africa? I have lived in South Africa for 26 years. I am both Chinese and South African. I love South Africa very much. I certainly hope that South Africa’s future will be successful. South Africa has many characteristics. Unfortunately, after many years of weak policies and corruption, it now faces a dilemma. Looking at the data of South Africa objectively, the risks are high. The economy needs reform, a lot of investments and infrastructure development, education, healthcare, and transportation. But the financial resources are limited, the national debt is high, and there is too much corruption. There is a danger of a vicious circle of shrinking the tax base due to the massive brain drain. The labour law does not support the development of a large number of small businesses. The lack of infrastructure makes it uncompetitive in many industries. The future of South Africa depends on everyone's contributions and sacrifices, but for everyone to sacrifice, the people need to unites, everyone needs to have a shared dream. It is difficult to say whether South Africa today has any determination to change. Of course I very much hope that South Africa can change and will definitely come back after retirement! How do you see China's future? There is no perfect government in the world, but China's general economic and social development has been very successful over the past 30 years, which can be said to be the opposite of South Africa. Infrastructure, planning, education, healthcare, anti-corruption, and opening-up for business have all made great progress. In 1990, China's per capita GDP was 300 US dollars, South Africa was 3,000 US dollars. In 2018, China's per capita GDP was 9600 US dollars, exceeding South Africa's 6200 US dollars. Today's China has the foundation of a successful country. Although there is a certain degree of friction with Trump, through the efforts of the Chinese and the current scale and foundation of China, there should be very successful development in the next ten to twenty years. I returned to China in 2016 and has lived here for four years. I can understand why China can succeed. People are united, transportation efficiency is high and cheap, general education is of high quality, basic healthcare is almost free, super safe, and the economy is active. Every day you can feel the energy of China. Naturally, the gap between the rich and the poor is also very large in China, but unlike South Africa, the older generation with poor education works hard every day to do blue-collar jobs and entrepreneurship, and the younger generation’s education has caught up with the level of developed countries. Whether starting a business or working, ordinary people all have jobs, and have more than enough. Everyone works hard. So in the near future, China will be a country capable of development. China now has capital, talents, infrastructure, and a good business environment. Of course, the biggest risk for China is to rely too much on good leadership. Just like Singapore, the Chinese government is very strong and the country will be very successful when it is well led. After Xi Jinping took office, he did a lot of anti-corruption work and changed the direction of China's development. After years of rapid opening up, China shared many similarities with South Africa a decade ago. There were too many corruptions, government agencies were becoming more and more ineffective, national assets were lost, and policies Just looked at the short-term, and let the next leader solve the long-term problems. Through many improvements and hard work, be it pollution, anti-corruption, product quality and safety, deleveraging, shadow banking risks, and transparency of government agencies, it can be said that the direction has changed. These changes are something everyone can experience. Although there are risks, I am confident that China will continue to grow and develop. What advice or encouragement do you have for university students who want to enter the financial services sector? Finance is a very fulfilling career, which gives me everything in my dreams, but young people who want to join the industry must like this industry before joining. Competition is fierce and pressure is high. If you choose the finance sector just for money, you will collapse. I have seen too many people burn out after five years. To be successful, you must have a passion for this industry and it matches your personality. The second point is that if you decide to join, you must be determined to work hard. Finance contains too much specialised knowledge. Only through hard work can you become an expert. I have never met a lazy person who is successful in finance. Everyone is not only smart but also working hard. People who are successful in finance must have high IQ and EQ, as well as the spirit of continuous improvement.
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Summary The US-China trade war that began more than a year ago has been hurting the economy and trade of the two largest economies of the world, while also disrupting and re-shuffling the global supply chain. In addition, the United States hiked interest rates four times last year, increasing the rate to 2.25%, attracting funds back to the United States, first hitting emerging markets, and then hitting the US stock market. The US stock market had the second worst rate of return in December in the past 100 years (-7.8%). The South African asset management companies that I rate highly agree that the South African stock market and global emerging markets are at or near historical lows, and many good investment opportunities are found at this stage. We recommended long-term investors to continue to have exposure to growth (stock) assets, which could provide a 60% return over the next three years. *** Global The US-China trade war has been more than a year since the US declared it last year. President Trump of the United States believes that China was competing unfairly. The US trade deficit with China is huge and continues to expand. China infringes on intellectual property rights, as well as providing subsidies to public and private companies. Sanctions include imposing 10% tariffs on imported products from China, lawsuits and measures against ZTE, Huawei and other Chinese telecommunications companies, and containing Chinese companies in the 5G sector. From the recent statistics on Chinese economic growth and import and export volume, China’s exports in February fell by 20.7% from the previous year to US$135 billion, the largest decline since February 2016, indicating that the US-China trade war is having a significant negative impact on China. China's stock market fell 25% in 2018, but since the start of 2019, China's stock market has risen by 25% due to the recovery of global investor confidence and the Chinese government's monetary easing. In 2018, the US stock market was steadily rising, until it experienced a sharp 7.8% drop in December and a 6.1% decline over the year, the first annual negative rate of return since the 2008 global financial crisis. However, it has risen 11.48% since the beginning of this year. South Africa After Cyril Ramaphosa was sworn in as new president at the beginning of last year, there were high expectations from all sectors, which was termed Ramaphoria. However, the US-China trade war, the emerging market currency crisis, the ANC party’s two-faction fighting have caused the high spirits to evaporate quickly. The successive commissions of inquiry have opened up the lid on the rampant corruption and briberies during the Zuma era, so now we know that the National Treasury was hollowed out, and the infrastructure is crumbling. Eskom frequently broadcasts news of mismanagement, energy crisis and implements load shedding, which darkens investor confidence. South Africa’s economic growth rate last year is only 0.8%, and this year is not going to be any better due to the Eskom factor. South Africa's stock market fell 8.5% in 2018, the first annual negative rate of return since the 2008 global financial crisis. If former President Zuma sees the stock market return history, he will brag that, during his presidency, the stock market has risen every year and has never fallen! This is a bit ironic. South Africa's stock market has risen 6.3% since the beginning of this year. The four South African fund managers I rank most highly, based on my long-term observation, analysis and evaluation, agree that 2018 was a tough year for all investors: they lost money no matter where they put their money (except bank deposits and bonds). PSG pointed out that 2018 was a year of trying to avoid landmines: In 2018, the following well-known listed companies have brought huge losses to investors. The South African stock market is now near the bottom of the five troughs experienced over the past 40 years. Coincidentally, Coronation also has the same analysis: However, they also agreed that 2019 is a year of turnaround. The PSG research report pointed out that the annualized rate of return for the three years after the past five lows was as high as 24.3%, that is, the cumulative rate of return for three years was 92%. Even using the lowest annualized return rate of 16.4%, the investor's 3-year cumulative return would reached nearly 60%. This is the so-called reversion to the mean. Even if the South African economy does not do much, by going from the bottom of a market cycle to the average of a market cycle, with a little boost of investor confidence, the investors could receive this kind of return. PSG Asset Management is currently positive on the following asset classes (marked by green): South African domestically focused stocks, government bonds, overseas stocks and cash. Even though 2018 was a disappointing year for investment returns, we recommend investors not to give up on the stock market; continue to hold stock positions in the medium and long term, with exposure to South Africa and offshore markets. Allocate positions in shares, bonds and cash. During this trying time, I chose this pearl of wisdom from Warren Buffett to remind myself and investors:
Now is not the time to give up; it is probably the best investment opportunity since the 2008 global financial crisis. Kevin Yeh's Corner I am delighted to write to you in 2019. I trust that you and your family had a restful, festive year-end holiday. With everyone back at work and kids back at school, these holiday memories fade quickly into the background! There are some significant events taking place in 2019: - National elections, around end of April - 30 May to 14 July: Cricket World Cup in England and Wales - 20 Sep to 2 Nov: Rugby World Cup in Japan (Go Ama Bokke!) Not forgetting the SONA (State of the Nation) address early February, followed by the ever-important budget speech late February. Globally, the US-China trade war still hangs over the global economy. The Chinese economy is slowing to a growth rate of 6.6% in 2018 - the slowest pace in 28 years. The Chinese central bank is pumping liquidity into that economy. The US Federal Government shutdown enters 33rd day with no end in sight, as President Trump wants money for his border wall with Mexico. The Emerging Markets had a torrid time last year, reminiscent of the 2014 - 2015 crisis. The IMF projects the global economy to grow at 3.5% in 2019, slower than the 3.7% in 2018. The Zondo commission of inquiry into state capture has lifted the lid on corruption, money laundering and fraud. We now know how the officials in power have colluded and stolen from the state coffers, and why the South African economy has been a shambles. Turning to the financial markets, 2018 was a forgettable year for most investors. The JSE CAPI went down by 7.7%, the balanced fund sector had a negative return of 4.2%. The World Developed Markets returned -10.6%. Emerging Markets even worse -17.5%. China fared the worst at -25%. The only bright spot was bonds (7.7%) and cash 7.2%. Looking ahead, after the doldrums of 2018, 2019 should give investors better returns, as many asset classes are already at depressed levels. Investors should be patient and stay invested. Let us work together to fight corruption, improve our businesses and institutions, do what we can, to make South Africa a better place for all. And let's pray for our beloved country for a peaceful election, that people of ability and good character are in power to do good for the country. |
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