Picking winners and losers via long-short investing |
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<p><strong>Sunny Bangia</strong>: What we find quite interesting is that a country like China that has GDP per capita five times larger than India has life insurance penetration lower than India. So, it's quite an aberration. So, life insurance as an industry in China has significant long-term tailwinds. As the middle class rises in terms of wealth, they want to protect that wealth. So, we see a very, very positive long-term opportunity in life insurance in China and we think of it as actually more akin to a consumption product than a traditional financial type business model.</p>
<p>So, we like a company there, Ping An Insurance. Ping An is China's largest privately-owned life insurance business. It's benefiting from these industry tailwinds. So, we've done a lot of work at the industry level to be positive at the industry side. But at a company-specific level, why Ping An? Firstly, it's a privately-run organisation competing against largely state-owned companies. So, we think a private management team is going to be more highly incentivised that have significant equity in their business to drive shareholder value versus a state-run business that might be a bit more bureaucratic whose management incentives may not be fully aligned to shareholders.</p>
<p>Secondly, Ping An has spent huge amount of money investing in technology. Because in China you don't wake up and buy life insurance. You need to be convinced that you need life insurance. So, they have 1.6 million life insurance agents in the field. And Ping An over the last decade has spent a lot of money building big tech ecosystem trying to understand and map out where the middle class consumers sit, which ones they should target. Ping An also operates a bank and an auto insurance business. So, where they can use the tech to their advantage is cross-selling. So, the average life insurance agent in China sells life insurance. A Ping An life insurance agent sells up to 16 to 17 financial service products. So, that cross-selling opportunity is huge. So, that customer acquisition cost for each new product is nil and that goes straight down to the bottom line in terms of profit. So, that's a huge competitive edge that Ping An has over its peer group.</p>
<p>What we found is the market is quite skeptical on telecommunication stocks all over the world as these are businesses that have to deploy a huge amount of capital to build the network and then they don't earn a decent return on capital. But we have a different view on this approach. We don't think all telco markets are built equally. Densification of a telco market is very important. The more dense your telco market is and if you've already done all the CapEx in a dense market, the future CapEx requirements will be quite low. KT specifically after doing the industry work strikes us as a remarkably interesting opportunity. I mean, Korea has been a cheap market and a market that Antipodes Partners has done quite well finding unloved, high-quality businesses and we think KT is another one of those. The past examples have been KB Financial and Samsung Electronics.</p>
<p>KT Corp is Korea telco. It's like your Telstra of Korea. They have a very strong dominant market position. It's an oligopoly, which is a fantastic industrial structure to have. And the Korean telco market is very dense. So, we think the market is worried about 5G CapEx, which we think will be actually very low, very CapEx-light. So, cash flow generation will be very high. We think the free cash flow yield for KT Corp could be 14 per cent to 16 per cent, which will be an incredibly high free cash flow yield. And that will get paid out through dividends. And there is a very strong correlation as dividend payout ratios go up, valuations go up. Today, we are buying KT Corp at a huge margin of safety, 2.5 times enterprise value to cash flow. We think the multiple ways to win will be a higher payout ratio, very low CapEx requirements with the market is probably overstating, and finally, they have a very large real estate portfolio. So, a bit like Telstra that had legacy government property assets, so does KT Corp. And KT Corp is going to monetise these assets through asset sales and development which will also unlock value, also generate higher earnings which we think we are getting for free in the price. So, we can see multiple ways to win, a huge margin of safety and it comes through our big work done on global telcos.</p>

27/01/2021 Rebecca Jiang, manager of the JPMorgan China Growth & Income Trust, looks at why Chinese stocks soared in 2020 and whether the trend can continue.

25/01/2021 Redpoint's chief executive and portfolio manager Max Cappetta tells Lex Hall why he's got his eye on JB Hi-Fi, Goodman and Reliance Worldwide in 2021.

21/01/2021 Redpoint CEO and portfolio manager Max Cappetta looks at the dividend potential of large-cap names, the resilience of Qantas, and the local tech landscape.

19/01/2021 Stocks still look cheap across all subsectors, especially oilfield services and refining, says Morningstar analyst Dave Meats.

19/01/2021 What are the rewards and risks of using this technology?

15/01/2021 Morningstar's head of policy research Aron Szapiro explains what sort of changes a Biden government will make and how they will affect company valuations.

14/01/2021 Freight-rail, building temperature efficiency, and carmaking are among the sectors Aviva Investors' Jaime Ramos Martin has his eye on.

13/01/2021 Dividend investors had a hard time in 2020, but Morningstar analyst Dan Lefkovitz think the outlook is brighter for the year ahead.

11/01/2021 Morningstar Investment Management's Dan Kemp reveals the three investment themes on his mind for the year ahead.

06/01/2021 Morningstar equity analyst Allen Good looks at the prospects for oil and gas giants in the year ahead.

05/01/2021 China had a strong year after a rocky start, but can it continue—and what does a US President Biden mean for the region? Morningstar analyst Lorraine Tan explains.

04/01/2021 Morningstar equity director Alex Morozov considers the outlook for tech, travel and beyond for the year ahead.

01/01/2021 How to plan for things you can't plan.

25/12/2020 2020: we look back at the highs and lows of an unprecedented year in financial markets and explore the themes shaping 2021.

22/12/2020 Music streaming companies have seen stellar growth in user numbers. We ask Morningstar equity analyst Neil Macker if the trend can continue.

21/12/2020 While it stands as the largest addition in the index's history, this likely won't impact everyday investors all that much.

18/12/2020 Will there be opportunities to deploy cash in the new year? Will there be a reprieve from covid? And what will the incoming Biden administration mean for markets?

18/12/2020 Companies that specialise in solar, building efficiency and renewables underpin Aviva Investors' Climate Transition Global Equity Fund, says Jaime Ramos Martin.

16/12/2020 Why does liquidity matter to investors, and how can it affect your returns? Morningstar equities director Tom Whitelaw explains.

14/12/2020 Learn what we look for when rating a company.

14/12/2020 Morningstar's new approach unpacks the environmental, social and governance risks that companies face.

10/12/2020 Industrial companies typically generate better cash flows and can offer a steady income stream, says the IML founder.

09/12/2020 The lofty valuations of Tesla and Afterpay typify the effervescence and speculation in the market, says the IML founder.

08/12/2020 Car makers may not be an obvious investment choice for ESG-conscious investors, but Morningstar analyst Tancrede Fulop says some of the largest companies score highly in some measures such as safety and human capital.

07/12/2020 Janus Henderson's Matt Peron considers how the relationship between the US and China will evolve under a President Biden.

04/12/2020 What is active investing, and what is passive investing? We're at the whiteboard to explain the pros and cons of each

04/12/2020 Treasury Wine Estates remains an undervalued stock in spite of China's demand-destroying tariff on Australian wine. Morningstar director of equity research Adam Fleck explains why.

03/12/2020 And do any other assets currently compare?

02/12/2020 We're at an inflection point in ESG investing, says Sustainalytics founder Michael Jantzi. Here's why.

01/12/2020 Beaten-down travel stocks and BNPL providers featured heavily, says nabtrade’s Gemma Dale.

30/11/2020 Many people were waiting for the opportunity to buy shares at historic discounts, says nabtrade’s Gemma Dale.

27/11/2020 The 171-year-old wealth manager has had its scandals but there's merit to its turnaround strategy and the quality of its other assets, says Morningstar's Shaun Ler.

27/11/2020 BNPL products such as Zip Co help boost consumer spending but they come with risks and are overvalued, says Morningstar analyst Shaun Ler.

26/11/2020 The Magellan co-founder argues the ecommerce acceleration is here to stay and ponders the effect it will have on other sectors such as travel and commercial real estate.

25/11/2020 Greg Dean of Cambridge Global Asset Management explains why the consumer services sector has yielded healthy returns.

25/11/2020 Magellan's co-founder explains which tech behemoth the Magellan Global Fund no longer owns, why one was too tricky to value, and why regulation is no threat.

24/11/2020 Magellan's co-founder on why 2020 resembles 2000 and why covid-19 is a dry run for something that could be much worse without proper planning.

23/11/2020 Their shares have gotten hammered this year. Are they opportunities or value traps?

20/11/2020 Our new rating highlights the degree to which a fund or asset manager considers environmental, social, and governance issues.

19/11/2020 Morningstar's Grant Kennaway explains why sustainable funds are increasingly popular and why they're performing well.

17/11/2020 Morningstar director of equity research Johannes Faul looks at home improvement retailer Bunnings.

16/11/2020 From climate change to workers' rights, ESG is a big part of the investing world. We're at the Morningstar whiteboard board to explain what it means and why it matters.

12/11/2020 We're not out of the woods yet, says our head of equity research, as he looks for safety in businesses we can't live without and shies away from the banks.

11/11/2020 Perhaps it is time to have exposure to this economic powerhouse and its 1.4 billion population, says Morningstar's Peter Warnes.

10/11/2020 What happens when you buy something when your bank card? Morningstar analyst Niklas Kammer explains which companies are benefiting from your transaction.

09/11/2020 With travel bans and economic lockdowns, the luxury sector has been hit hard in 2020. But there are still opportunities, says Morningstar analyst Jelena Sokolova.

05/11/2020 A discussion of taxes, stimulus, regulation, and the likely market reaction as results from the 2020 poll come in.

03/11/2020 Why you should resist the urge to make predictions when there's a disconnect between the economy and security prices.

02/11/2020 Etoro analyst Josh Gilbert shares his thoughts on Beyond Meat and two other companies making inroads into the plant-based meat sector.

30/10/2020 The Magellan rainmaker explains why he doubts the Republican leader will prevail and why investors should brace for volatility—and ignore it.

29/10/2020 The market for plant-based meat is worth $14bn today and is expected to grow massively, says eToro's Josh Gilbert.

28/10/2020 Morningstar equity analyst Johannes Faul explores the flipside to the surge in growth in online sales.

22/10/2020 China and Hong Kong have been a happy hunting ground, says Longlead Capital Partners' co-founder Andrew West, who singles out tech, pharmaceuticals and power tools.

22/10/2020 These names stand to benefit from a resumption of leisure travel - and are all trading below our fair value estimates.

20/10/2020 Morningstar's Mark Preskett looks at three reasons why bonds are an important tool in your investment portfolio.

19/10/2020 A bigger stake in the online conveyancer PEXA could be the key to increasing Link Administration's revenue, says Morningstar's Gareth James.

16/10/2020 Longlead Capital Partners co-founder Andrew West reveals how his Asia-focused fund managed to make gains during the historic covid-19 sell-off.

16/10/2020 The investment board is back with an explainer on why you might invest in bonds.

13/10/2020 How to handle this decision—even when it is made for you.

12/10/2020 Nick Griffin of Munro Partners reveals why and where he sees opportunities in renewable energy, diagnostics and software.

09/10/2020 Take stock of your spending to determine if inflation is an issue for you.

09/10/2020 Morningstar analyst Chelsey Tam explains why investors are excited about the flotation of Ant Group and why it's different from Alibaba.

06/10/2020 Companies that address the growing demand for decarbonisation will have a 20-year growth opportunity, says Nick Griffin of Munro Partners.

30/09/2020 EXCLUSIVE EXTRACT: Morningstar's Mat Hodge and Lex Hall talk to the CEO of the independent producer and exporter about the company's fortunes and its future.

30/09/2020 Slow and steady wins the financial race.

29/09/2020 American Century Investments' low-turnover strategy invests in companies developing vaccines, treatments for neuro-cognitive diseases and innovations in telemedicine.

25/09/2020 By 2050, almost 20 per cent of the global population will be over 65 and demand for healthcare will climb, says Michael Li of American Century Investments.

22/09/2020 The destruction of an indigenous cave shelter was unforgiveable but there are other reasons why the iron ore heavyweight is overvalued.

21/09/2020 Morningstar equity analyst Kristoffer Inton on the outlook for the seven producers under coverage.

18/09/2020 Morningstar's Seth Goldstein singles out three undervalued stocks that span the entire electric vehicle supply chain.

18/09/2020 The bumps and bruises of election time may tempt you to shift your portfolio strategy.

17/09/2020 UK-based Premier Miton's Simon Evan-Cook says the tech rally of 2020 is reminiscent of the dotcom boom, but inflation could be a bigger threat.

16/09/2020 By 2025, the cost of batteries and manufacturing will fall and EV functionality will improve, says Morningstar's Seth Goldstein.

11/09/2020 Estimating the length of your retirement with personalized information will help you save the correct amount.

09/09/2020 Morningstar's Chelsey Tam reveals which stocks and sectors have shone—and which have underwhelmed.

28/08/2020 Products, services, what is what in the world of finance—and how to look out for yourself

24/08/2020 A raft of companies have cut their dividends this year, leaving income investors concerned. But Morningstar's Dan Lefkovitz says there are still plenty of options out there.

18/08/2020 DNR Capital's chief investment officer Jamie Nicol profiles some of the top ten holdings in his Australian Equities High Conviction fund.

17/08/2020 Morningstar's Brian Han explains why he has trimmed his fair value estimate for Australia's dominant telco and the future of its dividend payout.

14/08/2020 DNR Capital's Jamie Nicol reveals how his Australian Equities High Conviction fund finds quality businesses that will endure difficult conditions.

13/08/2020 Put your money to work if you're looking for financial freedom.

10/08/2020 Learn how to picture your goals so you can better reach them.

05/08/2020 Morningstar's Gareth James identifies three sector names trading at attractive discounts in an increasingly 'essential' sector.

05/08/2020 Reports of the strategy's demise are greatly exaggerated, says Morningstar's Christine Benz.

04/08/2020 Investors may assume a fund's yield to determine how much income it will pay, but it's not always so simple, warns Morningstar analyst Rajesh Yadav.

03/08/2020 It depends on your expectations and timeframe. Look at bonds as being portfolio stabilisers—sources of cash flow you can draw on when your equities are down, says Christine Benz.

28/07/2020 When utility stocks plunged during the onset of the pandemic Lazard Asset Management's Warryn Robertson knew it was time to jump in.

24/07/2020 Lazard Asset Management's Warryn Robertson looks at how the pandemic has affected toll roads and airports and what the future of travel holds.

23/07/2020 Morningstar analyst Tancrede Fulop singles out a few companies that have performed well and also led the way in looking after staff.

21/07/2020 New stock-pickers are prone to lose money. Are the lessons worth the price? We ask Morningstar's Christine Benz.

20/07/2020 Elevated iron ore prices have lifted mining company earnings to eye-watering levels but this doesn't make them income stocks, says Morningstar's Mat Hodge.

17/07/2020 Local miners should deliver stellar fiscal 2020 results but such outperformance is unlikely to last, says Morningstar’s Mat Hodge.

17/07/2020 --

16/07/2020 How to make some upgrades during this down time.

16/07/2020 Covid-19 has made the intended public offering impossible, says Morningstar's Andrew Willis.

15/07/2020 JPMorgan's Nicholas Weindling talks opportunities in Japan and reveals the stock that has been his largest holding for almost a decade

15/07/2020 The asset class has a habit of outperforming but Morningstar's Ross MacMillan sees signs of a bubble.

13/07/2020 Rachel Winter of UK fund manager Killik & Co talks payments, social media and investing in her monthly stock pick round-up

09/07/2020 And what we expect to see moving forward.

07/07/2020 Large growth maintains its supremacy in the Morningstar Style Box during a volatile first half for mutual funds.