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Tiger trader's Wall St insights

2014-02-10 11:18 China Daily Web Editor: qindexing
Junheng Li, a successful stocks analyst, is now a best-selling author. Feng Yongbin / China Daily

Junheng Li, a successful stocks analyst, is now a best-selling author. Feng Yongbin / China Daily

Founder of equity research firm says she is concerned about credit bubble

Junheng Li insists she is not as frightening as the title of her new book might suggest.

Tiger Woman on Wall Street, part autobiography but also a candid insight into the pitfalls of investing in China, charts a remarkable career that has taken Li from relatively humble origins in Shanghai to being one of the most successful Asian women on the world's most famous financial street.

"I think the title makes me sound a bit scary. I guess at work I am an aggressive person. I don't give up until I get what I want. I think in my personal life, however, I believe more in fate and luck," she says.

Li, who despite her steely reputation often breaks into laughter, was back in China to promote the book that has already sold out in English in her native country prior to the publication of a Chinese edition.

She will also be speaking at the London School of Economics and at Oxford and Cambridge universities immediately after the Chinese New Year holiday.

Over tea at the JW Marriott Hotel in Beijing, she reflected that there was almost as much glitz and glamor in the country she has left behind than her new home city.

"I don't think New York is as show-off as today's China. In a way you can understand it. Everything has happened so fast here. Everything is a bit too young, a bit nouveau," she says.

One of her book's most graphic passages is the opening where she is forced to kneel on a washboard and recite multiplication tables in front of her father who slapped her across the head if she made mistakes.

She says that although this treatment was harsh it meant she successfully competed against 2 million other children to get into a good high school in Shanghai.

"It is very different today. When I interview kids today coming out of graduate school, they all show up for their interviews with LV bags," she laughs.

She does not regret her upbringing and believes her father was demonstrating his own "language of love".

"It was a reward as well as a punishment system. If I did well, he would bike miles to get me pork buns," she says.

She eventually succeeded in getting a four-year scholarship to Middlebury College in Vermont, where she graduated summa cum laude in economics and mathematics.

After that she began her career on Wall Street, where she has worked for, among others, Credit Suisse First Boston and The Franklin Templeton Fiduciary Trust Co as well as hedge funds.

Five years ago, she launched her own business, JL Warren Capital LLC, an equity research firm specializing in China. She combines this with being a columnist for Forbes.com and Bloomberg LP.

In her book, she discusses well-known Chinese companies such as Baidu Inc, Qihoo 360 Technology Co Ltd and Ctrip.com International Ltd as well as banks such as ICBC Ltd and China Construction Bank Corp. She also deals with issues such as China's shadow banking crisis and local government finance.

Li has been accused of being bearish about the Chinese economy - something which she denies - but she is concerned about the current level of debt.

"What most of my clients are really concerned about in China is the credit bubble. I think it has got to the stage where it is at a critical high. It just can't get any bigger."

She says she worries about poor corporate governance being behind another poor performing year for the Shanghai Composite Index. It fell 7.4 percent in 2013 to 2097.30, while the S&P 500 had its best annual performance for 16 years, rising 29.6 percent to 1848.

"It has been down whereas all the other markets have been up. All the Chinese portfolio managers complain to me that they wished they just invested in the S&P 500.

"It is not that there aren't any good businesses in China but a lot of them are privately owned. A lot of the listed companies are young and they don't know how to deal with corporate governance very well."

Li says the book, which took her five months to write, was to focus predominantly on Chinese stock market issues but she soon decided that she wanted to include material about her own background.

"When I first started writing it I was told by the publisher to focus 80 percent of the content on business but I insisted I needed to include some memoir element from the 1980s and 1990s," she says.

Arriving on Wall Street in her 20s, she says, was far less daunting than starting her college education at Middlebury College, Vermont, when she realized she only had a shaky grasp of English.

She says the liberal arts education she got there represented a big departure from a Chinese rote learning education.

"I was doing a history of art course and was completely lost. I went to an office of one of the professors to get him to tell me how to tell whether a particular painting was good. He said you have got to answer whether it speaks to you. It was the first time I realized you have to observe with your heart as well as your head. It is not just about one plus one equals two," she says.

Li has not been someone without setbacks with her Aurarian Capital Management, a hedge fund that specialized in green stocks, crashing after three years in 2008.

The company was brought under by a holding in one agro-thermal company and partly by the onset of the financial crisis.

"It was not that we didn't see a mortgage crisis coming. It was the extent of it that we didn't foresee. The tech bubble at the turn of the century had been isolated but this was not," she says.

Since the financial crisis the whole world of hedge funds and short selling of stocks has come under scrutiny and often attack.

Li, however, defends the practice of selling stocks in the hope of buying them back at a lower price since she says it exposes the bad apples.

"By shorting a company I am expressing a negative view that either a business is fundamentally flawed or is over-hyped. Bad businesses deserve to go under," she says.

Li, who made her first million dollars by the age of 30, says she has no qualms about the returns people make on Wall Street.

"I don't feel bad about any money I have made. People talk about the big years. They don't talk about the money-losing years," she says.

"There have been periods when I have been physically unhealthy. At one time I was getting up at 2 or 3 am in the morning just to check emails to make sure there was no new information I needed to know before starting my actual day at 5:30 am."

Despite her personal wealth, she says she is not at all materialistic. "I fly business class but I wouldn't die if I didn't. I know where I come from. My needs are pretty basic. I am not a foodie and I don't own a Hermes bag. They are just bought by wives who want to do serious damage to a husband's credit card," she laughs.

Li remains fascinated by stocks and says the biggest lesson investors need to learn is that they are not investing in brands but actual companies.

"People buy Facebook and Apple because they are familiar with the products and they think therefore they know the stock. That is a fundamental mistake because stocks are sometimes different from the company or its products.

"I am actually quiet bearish on Apple because its growth in China is decelerating. All the low hanging fruit is gone."With that she was off to her next meeting.

"I find it more difficult to conduct business in China. In New York starting at 7 am and using the subway I can fit in up to seven meetings in the day. Here in Beijing with the traffic, I can do only three or four, if I am lucky."

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