Water and sewage treatment has been an overweight theme in the fund for a while, because of the growth potential following China’s decision to focus on improving the environment.
But stock selection is equally important in achieving alpha from a bottom-up perspective. I recently took profits and sold my entire position in Sound Global, a water and sewage treatment company listed on the Singapore and Hong Kong stock exchanges.
Being a small cap company with an unfavourable capital structure, my opinion was that the company should trade at a discount to its peers. I also realised the chairman would not share my opinion of the company he founded and I thought further alpha could be achieved from a corporate restructure.
Seeing the stock price jump almost 20 per cent in a matter of days following the chairman’s offer to privatise its Singapore listing was a welcome sight, especially when the rest of the market was in free-fall.
I chose to sell my entire holding in spite of it being at a small discount to the chairman’s offer, as from experience the regulatory hoops make these transactions drawn-out affairs.
China’s decision to rein in liquidity to stem the shadow banking sector has led to a blanket sell-off in China equities, so not using these proceeds immediately would have been a waste.
Fen Sung is manager of the Premier China Enterprise fund
