20 April 2019
John Mulcahy is optimistic about Hong Kong's future. Photo: HKEJ
John Mulcahy is optimistic about Hong Kong's future. Photo: HKEJ

Yum cha with John Mulcahy, the original Lai See

It took me some time to track down the man who created the South China Morning Post’s longest-running column, Lai See.

The light-hearted daily selection of gossipy tidbits in the business section was probably the first of its kind in Hong Kong.

I managed to dig out some copies of Lai See from the 1980s, thanks to the nice librarian lady I used to know at SCMP when I was the first local to pen the column, which I did for five years.

Finally, I found him. John Mulcahy, a South African-born accounting-trained journalist, has been the head of research at China Galaxy Securities (006881.HK) for two years, the latest stint in his more than two decades in the broking business in Hong Kong.

Mulcahy is humorous, as you might expect, but not super humorous. He enjoys making fun of the old days. He chuckles and laughs out loud at various points during our conversation.

With his daily newsletter, Yum Cha, on the table before us, we sat drinking Chinese tea and talking about the old days and the businessmen he admires.

EJ: Why is your daily product called Yum Cha?

JM: It was my choice. If people can relax and read the comments over a cup of tea — that’s the idea.

EJ: Why did you name your former column Lai See?

JM: Same sort of principle. I wanted to give people a little free thing every day: lai see. What we tried to do initially was to give some stock tips each day. It didn’t always succeed.

I phoned around to see what was hot and tried to give stock tips. Some of them were very successful. But you also wanted to be careful of course. People would try to [influence the column for their own purposes].

EJ: What do you remember from the old days?

JM: It is almost 30 years — 1984 — that’s how long the column has been running. This year is the 30th anniversary of the [Sino-British] joint declaration [on Hong Kong].

I was very new in Hong Kong when Geoffrey Howe [then Britain's secretary of state for foreign and commonwealth affairs] came back from Beijing in August 1984. He gave a press conference on what “one country, two systems” would look like.

You could see after that Hong Kong began to turn and became in a very weak condition — no transactions in the property market and very few transactions in the stock market.

Those days, there were four exchanges: Hong Kong, Kowloon, Kam Ngan, and Far East — HKEx was set up in 1996 [to combine them]. I remember the day when the total turnover of the four exchanges hit HK$100 million and everyone got very excited. Now if it is below HK$50 billion, everyone is very depressed.

EJ: Can you recommend a sexy sector and stock?

JM: I think the banking sector is really unfairly derated. I understand the argument [against it]; I think it is not going to happen.

People are going to take the risk and going to be rewarded. You get 6 or 7 percent yield for waiting.

If you ignore what happens to the share price [in the next two years], your pension fund will look a lot better.

Within that, below the main tier, I think the best is Chongqing Rural Commercial Bank (003618.HK). It’s got a very low non-performing loan ratio and a very liquid balance sheet. It’s got all the characteristics of a bank that’s ready for the difficult period.

I like the idea of the renewable-energy sector, so I think some of the companies in batteries — that is the area to pay attention to. I think there is huge growth in that area.

I actually think you mustn’t ignore BYD (001211.HK). It’s not exactly an unknown company. It has been through difficult cycles. I think it is the right place to be, because it’s got more experience on the battery side than everyone else. It’s going to have a lot of competitors in electric cars, but the key is the battery side.

EJ: Which Hong Kong businessmen do you respect?

JM: I have always been a fan of Li Ka-shing. He has been an astute reader of the cycle. It is not one man; he created a team. They moved into ports; very clever.

Telecoms — you remember the creation of Rabbit [a mobile-phone service Hutchison Whampoa launched in Britain in the early '90s]. It was useless. It was wrong technology. The strategy was right, but the execution needed to be checked, and that led to the creation of Orange [Rabbit's successful successor]. He made a very bold and courageous move.

If you look at other property developers, they have been much more cautious. He has successfully taken over from the old hong system, created respect for his ability as an entrepreneur as compared with his peers.

We used to wait outside on the doorsteps of the Bank of China building. Wait there unofficially. They would open the door and give you an impromptu press conference. I think access was easier then than now.

EJ: What about the others?

JM: I have always respected the strategy of Sun Hung Kai Properties (000016.HK). I am very disappointed about the meltdown in the current situation [the corruption trial of the firm's joint chairmen and other officials], but I think that the [co-founder, Kwok Tak-seng] was also very astute.

Very focused, high-quality investment and development properties. Different focus [from Li's Cheung Kong (Holdings) (000001.HK)], but very impressive.

I think Hong Kong has not created such a diverse range of entrepreneurs because of the [rewards from] investing in properties. Especially in the ’60s, the fortunes began to be made, and huge fortunes were created.

In a way, when the Shanghai entrepreneurs came to Hong Kong, they were very cautious about property. So although they were industrialists, to a large degree they did not benefit from Hong Kong, because having [fled the communists on the mainland] in 1949, they had concerns about the property sector.

I think that was fortunate in [that it resulted in a more balanced development] of Hong Kong into a bigger industrial centre.

EJ: Any mainland tycoons you respect?

JM: Obvious one is [Alibaba chairman] Jack Ma.

Wanda is an impressive company. They also have been very clever in diversification.

I think you will see a lot of entrepreneurial activity out of China in the next period. It will no longer be true that [state-owned enterprises] own everything.

In future, it will be the new economy. There is no SOE involved, by definition. You can see natural entrepreneurs coming through in that sector.

Many of the real estate companies have been successful, but I think mainland developers overinvest in land. I think their land banks are too big. They’ve got too much debt on the balance sheet.

I don’t think property developers should have 10 years’ worth of land bank. You are financing something that you are only able to sell in eight or nine years.

Having said that, they started in the market when there was no private property for 20 years.

EJ: Is Stock Connect a real deal?

JM: For an investor located on the mainland, it is less exciting investing in Hong Kong. I’m not too sure. If you say to them “you can invest in Nasdaq”, you will get a lot more interest. If they could buy Chinese shares listed on Nasdaq, buy [New York Stock Exchange-listed] Alibaba, they would be more interested in the US-listed shares, because they already own the [Hong Kong-listed] H shares.

I think the government is reluctant to open it up completely, because of the risk of losing control. It has a lot to do with currency flows on the capital account. Typically in China, [things will begin initially as] an experiment.

EJ: What about the other way round?

JM: I think south-north [trading] is more interesting at this moment than north-south. That’s the reality.

You’ve got to realize the psychology of mainland investors is quite different from those in Hong Kong. It is far less focused on fundamentals, whereas in Hong Kong, obviously you have momentum investors, but predominantly it is institutional and fundamental in nature. So that is the major difference.

For now, the momentum is not in Hong Kong; it is in Shanghai and Shenzhen. So you understand why the north-south [channel] is not attracting that many investors.

It may change. The time will come when there is a flood of interest. I am not distressed that we have not met the quota.

EJ: What’s the lesson here?

JM: The question for Hong Kong is whether it is the beginning of its end as an autonomous market. I don’t see that. There is a long way to go.

I think Hong Kong has a very robust, diverse governance and regulatory environment and experienced practitioners. Our financial markets have been through extremely difficult conditions.

Hong Kong is a very popular location for international funds, and I think it should not be too insecure. Will interest in China undermine Hong Kong? I don’t buy that.

The question is whether you get caught up in the excitement that everything will go up.

You sell on news. If you expect the worst, it usually gets better. If you expect the best, it is usually worse than that.

That’s the way the market seems to work. I think it is logical. As they say, when the last bear becomes a bull, you know it is time to sell the market.

You know you need a lot of bears for the market to keep going. You need a lot of bulls for the market to stay weak.

This is the first of two parts. Johnson Sze contributed to this story.

[Go to Part II]

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[Chinese version 中文版]

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