china 2022—ready for the rebound

For Institutional Investors Only—Not for Onward Distribution

China 2022Ready for the Rebound

Tiffany Hsiao, CFAManaging Director and Portfolio Manager

Today’s Topics Valuations more attractive amid volatility

Optimism for 2022 as policymakers recalibrate

Smaller companies offer structural growth opportunities

Q&AWe will open the floor for questions

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Growth stocks corrected

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R E V I E W A N D I N S I G H T S

Valuations More Attractive

Small caps held up better

Domestic sentiment stronger

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-30

-20

-10

0

10

20

30

40

Sep

2020

Nov

202

0

Jan

2021

Mar

202

1

May

202

1

Jul 2

021

Sep

2021

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M A R K E T E N V I R O N M E N T

Growth Stocks Corrected on Stagflation Fears

Value vs. Growth (%)12 Months Ending 30 Sep 2021

Source: Bloomberg. Data as of 30 Sep 2021. Past performance does not guarantee and is not a reliable indicator of future results.

— MSCI China Growth Index— MSCI China Value Index

3

-20

-10

0

10

20

30

40

Sep

2020

Nov

202

0

Jan

2021

Mar

202

1

May

202

1

Jul 2

021

Sep

2021

Source: Bloomberg. Data as of 30 Sep 2021. Past performance does not guarantee and is not a reliable indicator of future results.ARTISAN PARTNERS


Small Caps Held Up Better Than Large Caps

Small Company vs. Large Company Stocks (%)12 Months Ending 30 Sep 2021

— MSCI China SMID Index— MSCI China Index

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— Shanghai Stock Exchange Composite Index— Shenzhen Stock Exchange Composite Index— S&P BNY Mellon China ADR Index— Hang Seng China Enterprises Index

-40

-30

-20

-10

0

10

20

30

Sep

2020

Oct

202

0

Nov

202

0

Dec

202

0

Jan

2021

Feb

202

1

Mar

202

1

Apr

202

1

May

202

1

Jun

2021

Jul 2

021

Aug

202

1

Sep

2021

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Sentiment Stronger for Shanghai and Shenzhen Exchanges

Exchanges (%)12 Months Ending 30 Sep 2021

Source: Bloomberg. Data as of 30 Sep 2021. Past performance does not guarantee and is not a reliable indicator of future results. 5

Source: Bloomberg. Data as of 30 Sep 2021.ARTISAN PARTNERS

-1

0

1

2

3

4

5

6

Oct

201

6

Feb

201

7

Jun

2017

Oct

201

7

Feb

201

8

Jun

2018

Oct

201

8

Feb

201

9

Jun

2019

Oct

201

9

Feb

202

0

Jun

2020

Oct

202

0

Feb

202

1

Jun

2021


Stagflation Appears TransitoryBetter vaccines and therapies may ease pandemic lockdowns

China CPI (%)Five Years Ending 30 Sep 2021

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GDP Likely to Rebound and NormalizeEconomic disruptions are slowly easing

-10

-5

0

5

10

15

20

Dec

201

6

Apr

201

7

Aug

201

7

Dec

201

7

Apr

201

8

Aug

201

8

Dec

201

8

Apr

201

9

Aug

201

9

Dec

201

9

Apr

202

0

Aug

202

0

Dec

202

0

Apr

202

1

Aug

202

1

China GDP YoY (%)Five Years Ending 30 Sep 2021

7


-20

-10

0

10

20

30

40

Oct

201

6

Jan

2017

Apr

201

7

Jul 2

017

Oct

201

7

Jan

2018

Apr

201

8

Jul 2

018

Oct

201

8

Jan

2019

Apr

201

9

Jul 2

019

Oct

201

9

Jan

2020

Apr

202

0

Jul 2

020

Oct

202

0

Jan

2021

Apr

202

1

Jul 2

021


Consumers Resilient and Demand Still IntactSpending should resume as lockdowns ease

China Retail Sales YoY (%)Five Years Ending 30 Sep 2021

8

Property sector stabilizing

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M A R K E T O U T L O O K

Optimism for 2022

Power grid improving

Regulation favors innovative industries

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Orderly Restructuring Policy Tools Diversifying Economy

Three red lines policy

Policymakers focus on orderly deleveraging

Government usually runs budget surplus

Policymakers have tools that can be deployed

Policy favors innovative industries

China still has many engines of growth

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O P T I M I S M F O R 2 0 2 2

Property Sector Stabilizing

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2060 CarbonNeutrality Goals

5-Year Economic Plans

Course Correction

Local Implementation

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O P T I M I S M F O R 2 0 2 2

Power Grid Improving

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O P T I M I S M F O R 2 0 2 2

Regulation favors innovative industries

China faces big challenges and may need the private sector to help solve them

Policymakers seek to direct human and financial capital to innovation—innovative sectors tend to benefit

Companies with marginal impact to social benefits tend to be disrupted

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Structural Growth

A N U N D I S C O V E R E D U N I V E R S E

Small and Midcap CompaniesThree Tectonic Shifts

High Earnings, Attractive Valuations

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S M A L L A N D M I D C A P C O M P A N I E S

3 Tectonic Shifts

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1 Aging Population

2 Growing Health Care Demands

3 Drive for Technology Independence

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Millennial Consumers

Innovative Health Care

Technology Leapfrogging

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Where We See Opportunities

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40

60

80

100

Sep

2011

Sep

2013

Sep

2015

Sep

2017

Sep

2019

Sep

2021


High Earnings Growth Relative to Large Cap

ARTISAN PARTNERS Source: FactSet, MSCI and Russell. Data as of 30 Sep 2021.

Earnings Growth (%) ex Financials, Real Estate, Materials and Utilities

FY1 EstimatesTen Years Ending 30 Sep 2021

— MSCI China SMID Index— MSCI China Index— S&P 500® Index— Russell 2000® Index

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Attractive Valuations Relative to Large Cap

ARTISAN PARTNERS Source: FactSet, MSCI and Russell. Data as of 30 Sep 2021.

— MSCI China SMID Index— MSCI China Index— S&P 500® Index— Russell 2000® Index

Price to Earnings Ratio ex Financials, Real Estate, Materials and Utilities

FY1 EstimatesTen Years Ending 30 Sep 2021

0

5

10

15

20

25

30

35

29 S

ep 2

011—

30 S

ep 2

011

26 S

ep 2

013—

27 S

ep 2

013

22 S

ep 2

015—

23 S

ep 2

015

15 S

ep 2

017—

18 S

ep 2

017

12 S

ep 2

019—

13 S

ep 2

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7 Se

p 2

021—

8 Se

p 2

021

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10

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25

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35

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2011

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2013

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2019

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2021

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Large domestic market

Strong balance sheets allow self funding

Improving liquidity for small and medium size businesses


Structural Growth Opportunities

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New York Stock Exchange Shanghai Stock Exchange

Taiwan Stock Exchange

Shenzhen Stock Exchange

Hong Kong Stock Exchange

Total Size of Select Equity Markets Around the World

US $54 Trillion

Greater China $20

Japan $7

UK $3.7

Germany $2.9

Taiwan $2

Brazil $1

Source: FactSet. Data as of 1 Sep 2021

China Is the World’s Second-Largest Equity MarketRepresenting a large and liquid market, Chinese equities may help capture global growth

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Active Security Selection is Key

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Portfolio managers need deep understanding of public policy

Smaller companies often under less regulatory scrutiny, but risks remain

SASB materiality map can highlight key operational risks

Base, bull and bear case scenario explorations

People are often the key assets for innovative companies

Look for management teams that can execute across the market cycle

Regulatory risks

Operational risks

Corporate governance risks

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Market volatility has made valuations more attractive

Outlook for 2022 is optimistic as China’s economy slowly normalizes

Market rebound may favor innovative industries, especially among smaller companies

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Key Takeaways

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china 2022—ready for the rebound

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