Investors hear the term “innovation” and immediately think of technology industries, but your team's notion of that is broader. What does that include?
Matthews Asia Portfolio Manager Michael Oh, CFA:
Yes, we don't feel the concept of innovation is limited only to technology industries. Innovation can occur in both old and new industries. Transportation, for example, is an old industry but new ride-sharing services have disrupted this sector. And in Asia, they've taken the “sharing economy” to a new level. This is helped by the emergence of a vast middle class in many countries.
Innovation can mean leapfrogging technologies altogether. We also have seen it in terms of incremental changes in a firm's strategy or execution. It has also helped to create new markets and helped firms to gain market share within existing markets, like electric vehicles. North Asia still leads when it comes to innovation, particularly in China, Taiwan and South Korea where we see transformational changes in entrepreneurship.
You've built your career here at Matthews Asia over the past 18 years. What has it been like to work in one place for so long?
Yes, I started here not long after I finished at Berkeley, but it doesn't feel like I've been here that long. Every year Asia has changed and evolved so much, every year there are so many new entrepreneurs, companies and industries to learn about there. The time has flown by. I've learned so much from Paul Matthews (Matthews Asia's founder and director) and Mark Headley, our chairman. I was fortunate to learn from the two best Asia investors, Paul and Mark, on bottom-up investing and maintaining a long-term perspective. Having seen how much Asia has improved over the years and the challenges Asia as a region has overcome—such as the Asian Financial Crisis, the Global Financial Crisis and other crises—has made me an optimist.
Asia is still evolving at a fast pace and there are still so many things to discover. I recently spent time in Chengdu, China, for the first time, and I was impressed by the innovation I saw there. The explosive growth of the emerging middle class in China has brought sweeping economic changes to the global economy and it's exciting to watch.
Which aspect of your job do you enjoy most?
Meeting new entrepreneurs who create products that are truly improving lives in Asia.
How do you view Asia's corporate governance these days compared to what it was a decade ago?
The concept of a market-oriented economy and concepts such as shareholder return may still be new to some parts of Asia, but the region as a whole tends to get a bad reputation when it comes to corporate governance and transparency. There are companies in Asia to watch out for and that's why we believe active management is critical. It's our job to identify the good apples from the bad ones. Every country in Asia is different, and going through different stages of growth. Often I find investors who view the entire region the same way and there are so many nuances that get missed if you think of Asia as a homogenous place. I love the opportunity to educate our clients on Asia, and help them understand how we navigate these difficult markets.
How do you deal with concerns over accurate corporate reporting in Asia?
Essentially, we meet often with management teams in person and our due diligence includes visiting suppliers, customers, factories and competitors. We study company financials to look for red flags. We look for companies run in such a way as to minimize conflicts of interest across stakeholders and to ensure accountability for those who manage the business. We collect many data points and use them to verify by comparison, for example, against “official” publicly released data. We also consider the culture of a firm and its history of adhering to policies. Not only do underlying companies have an important part to play in improving corporate governance, but legislators do as well. So we also pay attention to the rule setters, and the regulators, who are the rule enforcers.
What should investors know about Asia's growing venture capital industry?
I've seen tremendous growth in Asia's venture capital and private equity industries over the past five years. Shenzhen in China is really becoming a hotbed of the latest innovations and entrepreneurial spirit. I see Shenzhen becoming the Silicon Valley of China, if not for Asia overall.
Michael J. Oh, CFA
Michael J. Oh is a Portfolio Manager at Matthews Asia. Michael joined the firm in 2000 as a Research Analyst and has built his investment career at the firm. Michael received a B.A. in Political Economy of Industrial Societies from the University of California, Berkeley. He is fluent in Korean.