Whilst Western governments struggle to cope with mammoth debt burdens and anaemic growth, many emerging markets face no such difficulties. Much of Asia, for example, has sound financial systems and balance sheets are strong at governmental, corporate and personal levels. Asia also benefits from much higher savings ratios and more favourable demographics than the West.
Whilst wider economic conditions in Asia are undoubtedly supportive, Hugh Young, manager of the Aberdeen Asia Pacific Fund, focuses his research at a company level. Asian companies have been paying down debt, refocusing on their core businesses and increasingly distributing profits to shareholders. Hugh Young looks for companies with conservative management, cash generation and a focus on domestic demand. He particularly favours the financial sector at present, believing that many companies have transparent business models, making it easier to identify investment opportunities.
Once he has found a good prospect, he backs his conviction, and will look to use any market setbacks as opportunities to add to holdings where he sees good value. The recent market falls have been a good illustration of this. An example of a company he currently favours is Singapore-listed bank Oversea-Chinese Banking Corporation. It is conservatively managed and has stuck to its core business of providing loans. It offers a relatively steady dividend yield and has expanded throughout the Asia Pacific region. Standard Chartered is another favourite holding for similar reasons; indeed it has managed to increase its market share during the global downturn.
While many of Asia’s economies are in great financial shape, Hugh Young has reservations about China. Its massive stimulus programme and record credit expansion has led to a surge in the property market, and the authorities are now taking steps to avoid asset price bubbles without damaging growth. The vast majority of Chinese companies are still state run, and some remain poorly managed. The growth potential of China remains huge, but Hugh Young believes that using Hong Kong-listed companies to access this potential is less risky, as they have superior standards of governance and accounting practices.
Hugh Young believes that valuations in Asia remain reasonably attractive, and is confident that earnings will continue to improve this year. He remains wary of short-term setbacks in the markets, but despite the recent volatility, he believes the portfolio is well placed to weather any storms in the long term. Corporate prospects in Asia are generally improving, and Hugh Young and his team have shown time and again that they can generate superior returns, even in an uncertain environment. It is not without risk, indeed investing in emerging markets adds to the risk, and the fund will fall in value as well as rise. Given the calibre of the team and its conservative approach, we believe this fund continues to merit its place on the Wealth 150 list of our favourite funds in each sector.
Key Features of the Aberdeen Asia Pacific Fund
The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.
