Around one-third of the fund is invested in Hong Kong and China, which is fairly understandable given that China is around half of the regional economy.
About 15% is invested in India, where Swan is looking for reassurance that policy reform is working to fix the country’s structural challenges.
“It is one economy that has potential tailwinds domestically, particularly with its young population, and aggregate debt to GDP is a fraction of what it is in developed markets,” he says.
“The market multiple is close to a global market multiple, which is quite cheap for India because of its higher growth rates. However, people are worried about the near-term earnings so maybe those price-to-earnings figures are understated.”
Of the south-east Asian economies, the team has the highest exposure to Indonesia that it has had in the past four years – through a bank, a utility company and a consumer-facing stock. South Korea and Taiwan are seen as low-growth economies, but host to a number of good companies.
Swan says: “Taiwan is very heavily exposed to the technology hardware sector. People are not buying more phones, tablets, computers and TVs, but within these devices there is a very big improvement in connectivity and there are technology leaders you can own that can deliver growth without relying on market growth.
“Korea is also home to technology companies and a lot of deep cyclicals. They are well-run companies that will be beneficiaries of a reflation story globally.”
While the pace of change in Asia means it is now a very different environment for stockpickers than it was 10, or even five, years ago, its prospects are still very much linked to the US. With president Donald Trump’s threat of greater protectionism comes threats to growth elsewhere.
“People in Asia are nervous about Trump but are also realistic that it is a negotiation that needs to happen rather than an outright threat,” says Swan. “They are waiting to see how much is bite versus bark.
“In the meantime, things are looking better. The local economies have stabilised, maybe improving, and generally things on the ground are looking up. We are also seeing consumers spending more.”
