MICUK: China's Taiwan Invasion Appears to be Off

Federated Hermes portfolio manager Jonathan Pines is bullish on China, but less convinced an internationally-controversial Taiwan invasion is coming

Christopher Johnson 3 May, 2024 | 9:25AM
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Christopher Johnson: I am here at Morningstar's Investment Conference with Jonathan Pines.

My first question to you is, in your speech, you mentioned that you thought that China would not invade Taiwan. Why do you think this?

Jonathan Pines: I think just on a balance of probabilities. I think, clearly, China wants Taiwan to be reunified and part of the same country. But that doesn't mean that they're going to go to war to cause it. So, the markets seem to be pricing in a high probability that that is going to happen because the valuations don't really make sense on any other basis.

When you've got high-quality companies trading on single-digit P/E multiples that are not necessarily growing quickly but growing, it means that the markets are concerned about something else and we're saying that the risk of China invading Taiwan has been more than priced in by the markets.

CJ: And in your speech, you also mentioned that you – well, you own Tencent (TCEHY) now, but you didn't at first. So, can you talk to me about the process to buying Tencent and why are you now bullish on the stock?

JP: Well, the valuation has come down. Just like all other stocks in China, Chinese stocks have been on a steady decline now for years. China is trading at record lows relative to the rest of the world. One of the key stocks in the benchmark is Tencent and whereas Tencent used to trade at a P/E in the half 30s, it now trades on 12 times next year's earnings. So, it's a valuation call. Tencent is an excellent company. It's very well run. And even though its growth is not going to be as quick as it has been in the past, at this kind of valuation for a stable earner, we believe is way too cheap.

CJ: Jonathan, thank you for being here with me.

JP: Thank you.

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Christopher Johnson  is data journalist at Morningstar

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