Asian equities are making a bit of a comeback this Isa season. Having fallen out of the top-10 selling sectors last March, they have climbed back to fifth position this year.
With US president Donald Trump backing out of the Trans-Pacific Partnership trade agreement, you could be forgiven for thinking this would put investors off the Asia region. Yet this doesn’t seem to have been the case.
Yes, it will have been something of a blow for the 11 countries that would have had more access to the US market, but it is their home markets that have far more potential in my view. Asia is the largest and most populous continent in the world, comprising around 50 countries and is home to more than 4.5bn people. North America has a population of 529m. I think Asia will be just fine.
But for a long time now there have been two elephants in the room: China and US interest rates. In both cases, nothing has really changed. China still has a multitude of issues and the US has slowly started its interest rate rising cycle. Both have been priced in and Asian economies, in general, are in a far better place than they were at the time of 2013’s taper tantrum. Most of the continent is living within its means, with stable inflation and high savings rates.
Asia is still a good place to find quality companies at reasonable prices. Valuations are attractive and at a significant discount to world equities, and the consumer is still strong. The key is to focus on stockpicking.
While China remains a concern, India is one of my favourite markets. Prime minister Narendra Modi, who has been in power for almost three years, is pro-business, and reforms, while slow, have been positive. He has cut red-tape and is trying to combat the black market, while badly needed infrastructure is being put in place with around 10km of road built each day. The potential is exciting.
These views are reflected in the portfolio position of one of my preferred funds in this space: JOHCM Asia ex Japan. It is underweight China by 5 per cent and overweight India by 10 per cent.
Managers Samir Mehta and Cho-Yu Kooi are based in Singapore. They are true bottom-up stockpickers and like companies that thrive in all market conditions. They use a four-step process to identify good investments: a quality screen, an eight-year historical exploration of the firm’s financials, a subjective company analysis alongside a financials forecast and scenario analysis, and finally a valuation stage where consistency of returns is key.
The pair like consolidating industries such as technology and healthcare, focusing on those with the ability to consistently generate high returns on capital invested. They are not afraid to pay up for quality or growth.
It’s high conviction with just 40 holdings, but these are firms from across the whole market-cap spectrum. The core of the fund is made up of high-quality growth stocks, while up to 25 per cent is invested in companies more sensitive to the economy.
