Mark Headley


October 26, 2018

China outlook: An exclusive interview with Asia mutual fund pioneer Mark Headley on China’s potentially world-changing political and economic transformation.
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October 26, 2018


Transitioning from active firm and portfolio management duties to Chairman of the Board is presenting a new set of challenges and opportunities to Mark Headley. He discusses the next chapter.

Watch the related WEALTHTRACK episode.

Great Investor Mark Headley: “You Learn From Your Losses”

March 22, 2013

Matthews Asia’s portfolio manager Mark Headley tells Consuelo about the sport closest to his heart and the lessons learned from it.

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Watch this episode with Mark Headley

Mark Headley: Asian Giants at a Turning Point?

March 22, 2013

China, which was struggling to fend off an economic hard landing just last year, has recovered. Japan, which has been stuck in a twenty-plus year trap of deflation and stagnant growth has a new Prime Minister who is determined to stimulate inflation and growth. Both nations have seen their stock markets rally in recent months after an extended period of underperformance for China and several decades of terrible performance for Japan. On WEALTHTRACK Premium this week we are exploring the investment potential in China and Japan with a true Asian market pro. Continue Reading »

Mark Headley Transcript 3/22/2013 #939

March 22, 2013

CONSUELO MACK: This week on WEALTHTRACK, deciphering the tea leaves for China. In a rare interview, Asia investing pioneer and Great Investor Mark Headley explains why this could be the year of China as it transitions to new leadership and a consumer driven economy. Matthews Asia portfolio manager Mark Headley is next on Consuelo Mack WEALTHTRACK.


Hello and welcome to this edition of WEALTHTRACK. I’m Consuelo Mack. What will be the big financial game changers of 2013? At the start of the year on WEALTHTRACK, Financial Thought Leader Ed Hyman, the Street’s number one ranked economist for three plus decades, and Great Investor Dennis Stattman, who runs the formidable BlackRock Global Allocation Fund, both agreed that China and Japan could be the year’s big positive surprises.


China, which was struggling to fend off an economic hard landing just last year, has recovered and Japan, which has been stuck in a twenty plus year trap of deflation and stagnant growth, has a new prime minister who is determined to stimulate inflation and growth. Both nations have seen their stock markets rally in recent months, after an extended period of underperformance for China and several decades of terrible performance for Japan.


We decided to delve deeper into the China and Japan renaissance theory with a Great Investor who is a true Asia pro. Mark Headley is Chairman of the Board of Directors of Matthews International Capital Management and a portfolio manager of the firm’s Pacific Tiger Strategy, which includes five star rated Matthews Pacific Tiger Fund, which Headley has run successfully for years. Both he and Matthews are pioneers in Asian investing- Matthews as a mutual fund firm and Mark as a portfolio manager. He was an original member of the team that launched the first SEC-registered open-ended Asia ex-Japan fund. With his more than 20 years of experience in Asia, Headley has seen massive changes in China, some positive, some not, but most transformational for investors. He believes China is now at a turning point and predicts this is going to be the year of China. I asked him why.


MARK HEADLEY: Well, I think China is really at the point of enormous change, and there’s one side of the audience saying it’s going to be terrible, and there’s another side saying it’s going to be great, and it’s going to be a lot messier. Both sides will be right. Both sides will be wrong, but I do think new leadership is going to make a difference. I do think that we’re coming to the end of the post ’08, ’09 crisis period where everybody reacted to that. The massive stimulus flowed through the economy. A number of distortions and bubbles sort of came up, and I think the government is now in place that, you know, hopefully will get everybody back focused on what is going on in the Chinese economy domestically, and I think there’s a lot of reason for optimism there.


CONSUELO MACK: You know, it’s interesting because Matthews Asia has kind of a saying that they think that China is a distinct asset class. What does that mean to be a distinct asset class? I don’t know what else is a distinct asset class, but that’s a big statement.


MARK HEADLEY: It is, and it’s one that we thought about for a long time, and it’s a young asset class obviously, but as an economy it has the potential to rival the United States, and that’s scary to us sometimes, but I think it’s a fact. It has that potential. It’s vast. It’s huge. There’s an enormous economic unleashing going on there. If they can successfully get the private economy going, you will have opportunities to invest in China that are very similar to investing in the United States, and as an asset class, we’ve already broken it down by a core long-term growth fund, a dividend fund and, more recently, a small cap fund, and I think that this is the future of China, that you could be running 20 different styles of investments there all distinct versus a market that is… you know, so often in emerging markets, whatever the economy is doing or the politics are doing, it’s one single line. We’ve already seen very significant distinctions between our three funds just in the matter of the last few years. So I think the diversity and depth is what we’re really talking about.


CONSUELO MACK: So let’s break it down, because you say that there are kind of many faces of China as well, and again, from an investment point of view, I think that a lot of Americans, for instance, are frightened of China. You know, they look at the headlines, and they hear about corruption and pollution, and they hear about that the communist party controls everything and that you can’t trust that the government is going to respect private property or private companies or not. What’s your view of the fears that we have about China, if they’re justified or not?


MARK HEADLEY: Well, my viewpoint is that China is something of a Rorschach test. It is so vast and so diverse- whatever you want to find when you go there, be it something terribly negative or terribly positive, you will find it. So you want to go find bubbles and corruption and, you know, taking a walk equals a pack of unfiltered cigarettes, you’ll find it. But if you’ve been there… I first went across the border in ’91 and went into Shenzhen when it was a dirty, dangerous little border town with no rules or nothing. You go back now; it looks like Singapore, and there are vast financial institutions based there. There’s biotech based there. There’s obviously huge manufacturing base that rivals any in the world, and this has been accomplished in the last 20 years.


So there’s been massive progress. Doesn’t mean there aren’t massive challenges going forward, so the big problem for the American investor is that they get these little blips of information, you know, very powerful articles about how people are losing their property in the rural areas and corrupt officials and a great article in The Wall Street Journal this morning on that, and it’s true, and rule of law, intellectual property right, abuse and corruption by government officials, these are huge problems. Tell me any developing country, including the United States, that hasn’t gone through those periods. The fact is, change and development are messy and chaotic. They’re ongoing, and there’s no guarantee that they won’t sink the ship. China is not, you know, some guaranteed future pot of gold. It’s a risky, long-term investment that I think has tremendous potential and so has a place in a long-term growth-oriented portfolio.


CONSUELO MACK: But what you just said is that it still is kind of a risky place, and you’re not sure that they’re going to be able to solve a lot of the challenges that you just talked about. So even do you have more confidence 25 years later than you did before? I mean, is there… so when I think from an investment point of view and where I should invest my portfolio, it’s kind of how big a part of it should be China?


MARK HEADLEY: Yes, but you’re on the more sophisticated end. You know, how much in China is not the question most people are asking. It’s whether or not I should be in China, or why would I be in China, and I would say that China is coming to a critical moment. We at Matthews have talked about the domestic economy, and we’ve done this all across Asia, that we want to own firms that are building brands and bringing in new services and really being part of the growth of the middle class in Asia. And there is a huge middle class growing in China, but it’s still a very small part of the overall economy, and we’ve had this massive export regime that everybody sees at Wal-Mart, and we’ve had this tremendous growth of infrastructure and property which we hear about all the time.


The third phase that China absolutely has to accomplish is a more robust domestically-oriented economy. It doesn’t have to be American level consumption, but it has to be some level of consumption and some level of sophisticated services and a sense of welfare in the economy that keeps people from stuffing all their money under the mattresses that will allow the Chinese economy to even out. It is too export-oriented. It’s too built on large capital infrastructure projects. The criticisms of that imbalance are absolutely correct, but I tend to believe that governments don’t do things that are hard and difficult until they have to, and I honestly think this is the point where China has to go back, improve the rule of law, have more transparent governance, a better social safety net. Workers are abused in China on a regular basis. We’ve all known that, and international companies, we’ve benefited from it. That has to be the next 10 years of the government’s effort. If they succeed in that, 10 years from now China will hopefully go from the roughly 5,000 a year per capital GDP versus 50,000 in the U.S. to perhaps 10,000.


You know, it’s not a huge move. They’re catching up with Mexico and Turkey. You know, this is not becoming the next super power, but because of the sheer size of China, it’ll have an enormous impact on the global economy, but more importantly it’s an enormous opportunity for companies operating within China. So I hope growth is higher quality, more domestically focused and with better transparency and rule of law. It’s not guaranteed. It is not guaranteed, but I think they’ll do it. Every stage of development in China has had a wall of naysayers saying it’s going to fall apart, and every time they’ve been proven wrong. This time there’s no guarantee they aren’t right.


CONSUELO MACK: So Mark, two years ago on WEALTHTRACK, you were more cautious about China. So you think that we really are, with this new leadership, that we are moving towards a more consumer-driven economy, that all the things that you just talked about actually could happen with this new leadership? Are you more optimistic?


MARK HEADLEY: Two years ago, the Chinese markets had staged a tremendous recovery from the depths of the financial crisis, and I thought that they had gotten ahead of themselves, and that there was a real potential from dislocations from all the liquidity that was released in an economy that’s still walled off from the rest of the world, and that’s pretty much how it worked out. It hasn’t been a terrible time. Different strategies, dividends have worked well. Small cap has been very difficult. I think now you have a global community that is still pretty pessimistic about China. I mean, you know, it used to be hard landing. Now, well, maybe they’re pulling off a soft landing. I think the Chinese economy is actually muddling along reasonably well. It hasn’t lost competitiveness yet. Wealth has been created along the coast. Shifting development to the interior is a long-term strategy. It’s going to take the next 20 years, but I think it’s all working, and when I look at China today, this is exactly what we hoped for. It doesn’t mean it isn’t challenging and difficult. It is a new phase where you need to do really sophisticated things like put in better health care and better education. These are really hard, and to allow market forces to enable those things. So how does a Chinese leadership that sends all its kids abroad to be educated at MIT and Harvard look around at their population and say, “We’re doing a good job?”


CONSUELO MACK: And that’s a very interesting point that you had talked to me about earlier is the fact that the Chinese leadership, they do send their children to university in the United States. So that’s an issue, right? And why do they do that?


MARK HEADLEY: Well, and I think that this is one of the… many of the issues in China today are not about the communist party. It’s more about an ancient Confucian society where learning was largely rote learning, and a teacher would lecture, and people would memorize vast amounts of information, and they might do well on a math test, but they aren’t going to invent the new Internet company is the concern, and so more creative thinking, more idea-driven, more challenging. You know, this is not something that the Chinese culture is terribly used to, but they realize. Again, it’s a culture that worships education and educational achievement, and so they’ve seen the tremendous value of our educational system, and they’ve recognized that not having… I mean, it was explained to me once how basically the Chinese labor market is the only true free labor market in the world. You can hire 50,000 workers, fire 50,000 workers for this whole migration of rural Chinese to the urban centers in search of a better life and higher wages. It’s been brutal, and that’s got to be addressed, and it’s going to that next stage of social development that I think encourages stability and encourages domestic consumption, and that is the challenge of this decade. I personally believe they’ll meet that challenge. I’ve watched the government, the society, the people meet challenge after challenge, and so I’m optimistic, but honestly it’s going to be tough. It’s going to be two steps forward and one step backward as always.


CONSUELO MACK: So let’s talk about how you are investing in China in Matthews, and you mentioned earlier that you’ve got kind of a three-pronged approach now. Tell me about the Chinese Dividend Fund, because somewhere I read in the Matthews literature that the last 10 years, a third of the total returns of companies in China, stocks in China were from dividends.


MARK HEADLEY: Right. You have a lot of companies, often traditionally in Hong Kong a lot of family-owned companies that paid rich dividends, and sometimes that’s very popular with the investment community. Sometimes it’s very unpopular like during the technology boom.


CONSUELO MACK: Right, it’s popular now.


MARK HEADLEY: It’s very popular now, and we have also found that just quality dividend payout over a period of many years has been a great indicator that management is honest and the governance of the overall company is decent. And so certainly you are less likely to step in one of these corporate governance disasters when you go to a company with a strong history of dividend payout, and I think everybody’s been risk averse. In a risk-averse world, this has been the perfect place to be, and I think it’s a great long-term strategy. At the opposite end of the spectrum, the Chinese small caps were in free fall for two years and have just started to recover in the last six months, and I think that as a growth investor… and working on the Matthews Pacific Tiger Fund, I’ve always been on the growth side of things. I think small companies in China are the most exciting long-term story on the planet, you know, right up there…




MARK HEADLEY: …with the very cutting edge of science and technology. Because this economy needs solutions, and I don’t think it’s going to come from these giant state-owned companies. I mean, they may take a horrible bank and turn it into a decent bank, and shareholders may be well rewarded for going along on that ride, but I don’t believe it’s the state that’s really going to transform the Chinese economy in the next 10 years. They need to do certain parts of the foundation like they’ve put in power generation and railroads. They need to do rule of law and better structures in a lot of the markets, but it’s the companies that are really changing the place, and if you look at the Internet companies, at the media companies that have really allowed the Chinese people to communicate and the use of text, the use of all these …


CONSUELO MACK: Like Baidu, for instance. Like ones we think of, not small.


MARK HEADLEY: … social media, all… but it was small, and Alibaba that has never come to market with Jack Ma being some sort of guru sitting up there. I think that there are thousands of other companies like that, and the small cap universe that is available to investors outside of China, outside of the A share market has grown from three to five hundred to over a thousand now, and you can be very sure that there are some bad apples in that batch. There’s been plenty of PR, you know, correctly so that some of these companies are crooked. Some of them are just horribly managed. Some of them are outright fraud, but many of them are the real entrepreneur cutting edge of China and especially when you want to get into the domestic market, and this is what… it’s great to own a company that builds iPhones and does a great job of that and makes a decent margin, and it can be a good globally competitive manufacturer. I’m much more excited about the company that’s going to introduce exciting new financial products, or I loved it when the first condo companies came out, and they were little tiny small caps building beautiful little model communities outside of big ugly cities and all of the entrepreneurs and government officials were running to buy them, and those companies are now huge entities doing vast projects, but they unleashed decent housing in China. It’s quite exciting to have watched that occur over the last 15 years.


CONSUELO MACK: And these companies are allowed to flourish and prosper and grow…


MARK HEADLEY: They are. It doesn’t mean they don’t have to play the game or get along, but I have seen plenty of entrepreneurial companies without strong government ties succeed. So frankly, I have not seen barriers that are… frankly, the barriers have seemed less than in Korea or Japan where small companies, should they start to succeed you see the big guys very well organized with the government as their ally kind of push them down. I’ve found the entrepreneurial environment in China to be more free-wheeling, sometimes too free-wheeling, but I think it’s there, and having Hong Kong as a primary base for listing so many of these companies is a great advantage, and it gives them a place that has a solid rule of law and good infrastructure in every financial sense of the word, and then they’re able to do their operations back in China, so that’s worked well.


CONSUELO MACK: Is that one strategy at Matthews, is to basically buy the Chinese companies that are listed in Hong Kong?


MARK HEADLEY: Hong Kong. Some of them are listed in the United States, and you get these flurries of listings in the United States because for some reason American investors will bid them up to, you know, much higher valuations and then they’ll all come to the United States, because the investment bankers will tell them this is wonderful, and then they find out how hard it is to be listed in the United States, how hard it is to deal with the SEC or a U.S. investment community that they don’t really know anything about. So there’s been… you know, I think some of them are up to the task. Some of them aren’t, and there’s been a pretty healthy shakeout in that respect.


CONSUELO MACK: Japan. What’s your take on Japan, which has suddenly become a darling for some international investors?


MARK HEADLEY: Well, I would say the “buy Japan-owned China” theory is one I’ve heard before. I don’t buy it. You want to own China? Own China. There’s plenty of high-quality companies to own in China. You want to own Japan? You should really own Japan, and we found any number of really fascinating small… dividend-paying companies have been a great investment for us in Japan which was unheard of 10 or 20 years ago. Technology companies, health care companies, Japan has a wonderful array of companies. They’ve been neglected because they’re Japanese. The Japanese investor has just gone from the market. What will it take to bring them back? It’s always difficult when you have a market where the domestic investor has just abandoned it and gone to cash. So there’s a chance that this is a real change. Abe has a mandate.


CONSUELO MACK: Right, the Prime Minister… trying to reflate.


MARK HEADLEY: The Prime Minister is trying … to end deflation, and if they end deflation, I think that this has been the rule of the octogenarian in Japan who for 20 years has sat there with modest deflation, a relatively stable economy and a steady to strong yen, has worked very well for somebody who is old and retired. It’s been a disaster for young people looking for jobs, and I am hoping that the political system and the population is ready to embrace more change than they have been in the last decade.


CONSUELO MACK: But you just don’t know.


MARK HEADLEY: I don’t know. I can’t say. I think stock by stock it’s a fascinating story. Japan Inc. rising from the ashes, I have to admit twice…


CONSUELO MACK: Twice burned.


MARK HEADLEY: I tried to believe in that a decade ago. I spent a lot of time and energy trying to convince myself that there was a new Japan, and I watched that new Japan really get mugged by the political system and the powers that be. So I have a healthy level of skepticism.


CONSUELO MACK: One Investment for a long-term diversified portfolio?


MARK HEADLEY: I decided to stick with a company versus a fund for those who have the guts to go into China and own a single company. Last time I was here I mentioned China Mobile, which very safe, very steady, large utility-like investment.


CONSUELO MACK: And did well.


MARK HEADLEY: And did reasonably well, yeah, did reasonably well- has been sort of the right kind of place to be when the overall market and economy were in a fairly negative environment. I’m willing to step out a little bit from that, and this is a company called Ping An and it’s based in Shenzhen, right next to Hong Kong. It’s quite independent and really is one of the more entrepreneurial, independent, large financial companies in China. It doesn’t mean the government doesn’t influence it, but it is not the arm of the government or of a ministry. They have always had powerful foreign partners. They have been in place for a long, long time and have built up one of the largest life insurance franchises and now going into banking and asset management. And they really have the potential to build a financial conglomerate, and they really attempt to …




MARK HEADLEY: In China, and so this is a play on China’s financial system which so many people will tell you today is going to crumble and fall apart, and I have no doubt that there are parts of it that are rotten, but I believe the higher-quality parts actually win in the shakeout. You know, the Chinese government does need to improve regulation, does need to have better oversight of, say, investment products. The quality companies get hurt by a low-quality environment. So I think as things improve, the really good companies in China have a chance to shine, and it is a real play on the domestic environment in China on a China where the middle class is getting more and more sophisticated, and life insurance and asset management products play right into that.


CONSUELO MACK: Well, we’ll see what happens. Thank you so much, Mark Headley from Matthews Asia. We really appreciate your being on WEALTHTRACK again.


MARK HEADLEY: Thank you so much.


CONSUELO MACK: At the conclusion of every WEALTHTRACK, we give you one suggestion to help you build and protect your wealth over the long term. This week’s Action Point is: consider investing in China. Mark Headley and his firm Matthews Asia believe that China’s economy and markets have reached such a level of size, power, diversity, and complexity that it deserves to be treated as a distinct asset class, requiring different investment approaches, as investors have had for years in the U.S. market. Matthews for one now has three different China funds: its original China Fund started in 1998, which invested primarily in Hong Kong-based and Hong Kong-listed mainland Chinese companies. It launched a China Dividend fund in 2009 and a China Small Companies fund in 2011.


No matter how you want to approach it, China deserves a small place in your stock portfolio. As we have said many times, you are not truly diversified until you own something you are uncomfortable with and China probably fits that bill as well!


If you have missed any of our past Great Investor or Financial Thought Leader guests, you can find them on our website, You can also see our new programs 48 hours in advance as a Premium subscriber, and see additional and extended interviews in our WEALTHTRACK Extra feature. In the meantime, thank you so much for taking the time to visit with us. Have a great week and make it a profitable and a productive one.




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