In its half-year report, the group’s £503m AsiaPacific fund manager said he had reduced the gearing in the trust accordingly, but was not overly bearish, as regional valuations remained below long-term averages and both balance sheets and cash flows remained strong.
Stressing that Asia was a bigger story than just China, reflected in Dobbs’ significant underweight to the country at just 5.1% of the portfolio, however this stance held back returns.
The fund’s NAV delivered a total return of 14.2% over the six months to 31 March versus its benchmark MSCI All Countries Asia ex Japan, which was up 11.9% in sterling terms.
The manager attibuted this performance to stock selection in Thailand, Singapore, Hong Kong and Taiwan and underweightings to Korea, Taiwan and Malaysia, and an overweight to Thailand.
Dobbs said: "These positive factors were partly offset by an underweighting of, and stock selection in, China and the exposure to materials stocks in Australia."
Cautious on China
He is keeping his cautious stance on China, pleased that market sentiment seems to be following suit. He noted that rapid growth, based on credit expansion through heavy investment, mainly in real estate, seemed to be approaching its limits.
He said: "A reset of expectations on China remains the biggest domestic risk to regional equities from a sentiment angle, though lower commodity prices, while bad news for materials and energy companies, is a big positive to Asia more broadly as inflationary pressure fades and real household incomes get a material boost. As ever, the key point is that Asia is not just China, given the superior transparency and corporate governance standards of maturer regional markets such as Hong Kong and Singapore, along with the potential for domestic consumption growth in Emerging Asean and India."
Meanwhile, JPMorgan Chinese investment trust also outperformed its benchmark, returning 17.9% over the six months compared with MSCI Golden Dragon Index, which rose 13%.
Lead portfolio manager Howard Wang cited stock selection and its gearing of 12% as contributors. Taiwanese technology stocks, and financials and consumer names in Hong Kong/China were highlighted as particularly beneficial.
In the £150m trust’s half yearly report, he said: "We expect a mild recovery for the rest of 2013. We believe the earlier than expected incremental policy adjustments are unlikely to derail the macro recovery. The renewed property tightening, combined with monetary policy fine tuning, should prevent property prices appreciating too fast."
While Hong Kong, China and Taiwan remain in a state of flux, Wang remains positive on the region’s recovery.
He said: "China has already reached its inflection point in both fiscal and monetary policy. The ‘bad news’ of the earnings season is completed and as a result, we remain constructive on equity markets in Greater China."
