

The woman at the centre of the WiseTech maelstrom

Karen Maley
Karen MaleyColumnist

It was a brutal assault, the savagery of which is seldom seen in the normally sedate and insular Australian sharemarket.

Just over a week ago, a withering research report from J Capital Research hit the market, accusing the $10 billion tech darling WiseTech Global of overstating its profits and organic growth.

J Capital's Anne Stevenson-Yang accused WiseTech of overstating its profits and organic growth, which sent the company's shares plummeting.  David Rowe

Speaking to the AFR Weekend from New York this week, the author of the report, JCap's Anne Stevenson-Yang, seems slightly bemused by the overwhelming reaction her analysis has elicited.

"I'm a little surprised that people care so much", she says. "We've had lots and lots of sign-ups. Traffic to the website has quintupled."

But how does it feel to be in the centre of a market maelstrom that had more than $2 billion wiped off WiseTech's sharemarket capitalisation in a matter of days?


"It's always stressful", she concedes. "We find that when we do this work for clients, there's a lot of pressure because you know that the company will attack you over any tiny thing that you've got wrong."

The unflinching clarity of Stevenson-Yang's report made its aftermath even more devastating.

"We estimate that overstated profit in the three years since WiseTech listed may be as high as $116 million", her report read. "That would be an overstatement of 178 per cent."

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Anne Stevenson-Yang

Alarmed investors dumped WiseTech shares, causing the price to slump more than 10 per cent, before trading in the stock was halted last Thursday.

No sooner had WiseTech shares resumed trading on Monday morning, than JCap unleashed a second barrage.

This time, the report highlighted WiseTech's history of dubious acquisitions and revealed that an independent survey found high levels of dissatisfaction among companies touted on the logistics software group's website as model clients.

Once again, the WiseTech shares were sent reeling, and a second trading halt was declared.


On Wednesday, WiseTech hit back. In a statement to the Australian Securities Exchange, the group's founder and chief, Richard White, responded.

He vowed to continue to deliver long-term value to shareholders "regardless of the noise and market disruption of these short-seller, self-serving and misleading claims".

As the brutal battle ebbed, shell-shocked investors were stunned to discover that the coruscating reports were penned, not by some aggressive hedge fund raider, but by a petite American woman, better known for her insightful, and decidedly sceptical, analysis of the Chinese economy.

Wisetech chief Richard White has accused J Capital of making "short-seller, self-serving and misleading claims".  Daniel Munoz

Stevenson-Yang, who celebrated her 60th birthday by going on a kayaking and camping trip in the Arctic Circle in June, first moved to China in 1985, initially working as a journalist and magazine publisher.

Several years later, Tim Murray, who has since moved back to Sydney's eastern suburbs and was Labor's candidate for Malcolm Turnbull's former seat of Wentworth at the last federal election, joined her publishing business.

In 2007, the pair co-founded J Capital to provide research on the opaque Chinese economy and its business practices to hedge fund managers, bankers and foreign company bosses.

Stevenson-Yang is, of course, impeccably placed to decipher the Chinese political and business system for foreigners. Not only is she fluent in Mandarin, she is also married to a former People's Liberation Army intelligence officer.


But her focus has since broadened. She says she's been living in the United States for years now, and that while she used to spend roughly half her time in China, "that's come down a bit. It's now less and less."

At the same time, a strategic decision was made to expand JCap's research beyond Chinese macro-economics and constant exposés of abnormalities at Chinese companies.

"We look at stocks that are overvalued for one reason or another", she says. "We like companies that are less about China and more about other countries, because we're trying to expand our brand."

Robust discussions

WiseTech fitted the bill perfectly. "We felt this one was very highly valued and a bit suspicious", she says. What's more, she adds, it was of interest to the Sydney-based Murray.

So were they both involved in writing the reports? "We work on everything together but I was the author of the report", she replies. Still, there were plenty of robust discussions along the way.

"WiseTech numbers are very peculiar anyway. It was the most difficult accounting exercise we've had", she says.

"Tim and I argued a lot over the definitions of organic revenues and acquired revenues. We actually yelled at each other a couple of times over the phone."


Clearly, the relationship between Stevenson-Yang and Murray is strong enough to withstand the occasional disagreement.

"She's a true entrepreneur, a no holds barred risk-taker who can stand up to anybody", Murray tells AFR Weekend.

"Anne is also very creative, incredibly hard-working and smart. She's also a very good writer, who has remorselessly attacked my writing style. We work well together."

Anne Stevenson-Yang is surprised at the fuss over her WiseTech report.  

As Stevenson-Yang points out, their work wasn't confined to poring over WiseTech's accounts. There was also a lot of primary research, looking at customer satisfaction levels and the experience of firms that had been acquired by WiseTech.

"The primary research supports the accounting analysis. So we feel reasonably confident," she says.

What's more, she says, JCap did give WiseTech the opportunity to respond to its findings pre-publication, although the approach to the company was made through a trusted third-party intermediary, rather than directly.

One question that remained unclear in the heat of battle was whether JCap itself stood to gain financially if its analysis triggered a precipitous decline in WiseTech's share price.


After all, the firm prefaces its report with the warning that "we will profit if these stocks decline in value", which left the door open for WiseTech's White to dismiss their analysis as "self-serving".

"We made it clear in WiseTech that we had a short interest in the stock. The activist short-seller model is well-established, and companies will always try to distract from the substance by claiming there's a conflict that taints the research", she replies.

"Despite our financial interest, our research is always objective. We did stock research for subscribing clients for a decade."

The ferocious conflict that has erupted over WiseTech, however, raises another question. Why would someone who has established a reputation as a China watcher choose to spend her time embroiled in difficult, disputatious company analysis?

Good market reasons

Stevenson-Yang says there are good market reasons for her decision. In particular, the booming US sharemarket has resulted in a collapse in the number of people prepared to pay for insightful Chinese economic analysis.

Record numbers of hedge funds have shut down their operations as investors baulk at paying their famously high fees, particularly when so many have failed to match the investment returns of low-cost index funds.

"It's a very simple reason", Stevenson-Yang explains. "Money loves [Donald] Trump because they know he's going to drive the sharemarket higher and higher. Since his election, the sharemarket has been on a tear, irrespective of the profits that companies are reporting."


In contrast, she says, "hedge funds have done very poorly, and a third have gone out of business. And that's the client base."

So how damaging has Trump's trade war been for China?

"I don't think the trade war is much of an issue", she replies. "China's grappling with the problem that their growth has been based on credit expansion. The country is stuck in this situation where credit has to increase exponentially every single year simply to cover the maturing credits from the previous year."

But, she says, "that can't continue indefinitely because of the build-up in debt. Beijing is anxious to avoid a financial system collapse, so it's reining credit growth to around 12 to 13 per cent a year".

"And although this is a lot faster than China's economy is growing, it's not enough to stop the economy from wilting."

But what about the conventional wisdom that because Beijing controls the country's banking system, it has the power to avert any financial collapse?

Stevenson-Yang says this argument would be true only if China were insulated from the rest of the world.


"But China accounts for roughly 12 per cent of world trade, so China has to have a currency that other people accept.

"One effect of expanding the currency base within China is that it creates massive asset price inflation. If the money were not trapped in China, asset prices would not be so high.

"If people could easily take their money out, why would they pay $US2 million ($2.9 million) for a property in Beijing rather than spend $US2 million on a property in London?"

"Interesting situation"

But, she says, there is considerable downward pressure on the Chinese currency, as credit growth remains strong and as Chinese citizens find new ways around regulations aimed at stopping them from shifting funds out of the country.

In the meantime, she says, she's keeping a close watch on Hong Kong, which she sees as "a very interesting situation".

"I think Beijing has been trying for a while to use this dislocation and increasing violence to delegitimise the protests.

"It's really out of the United Front playbook," she says, referring to China's Communist Party organ, which runs its foreign influence and soft power operations.


Beijing's approach, she says, has been partly effective. "There are now a lot more Hong Kong people sick of disputes and protests, and the economy is in sharp decline. But I don't think it's worked as well as the Communist Party would have wanted."

She also points out that although Hong Kong's economy has been hard-hit by the protests, property prices there have fallen only by a modest 10 per cent or so.

"It's surprising that property has not gone into a death spiral. That just shows how much money the mainland government has spent to support it", she says."Those Politburo guys are more exposed to Hong Kong property than anyone."

It's classic Stevenson-Yang. She's long been a dauntless critic of the stark inequality of wealth in China and the opportunism and thuggery of the Chinese Communist Party elite.

In the past week, local investors have come to appreciate the extent of her fearlessness.

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