Darius McDermott, managing director of Chelsea Financial Services, says while he has stayed broadly positive on the region since the crisis, his conviction has varied.
Between 2000 and 2007, McDermott says the firm was very positive on the asset class, allocating to it themselves and promoting the region to clients.
“Post the global financial crisis we have not been as keen,” he admits, adding that “very recently we have started adding more to the region.”
McDermott is not alone in this. According to a poll of wealth managers at Portfolio Adviser’s Asia event in April, nearly 50% of respondents said they were likely to increase their Asia Pacific ex Japan exposure in the next 12 months. Only 9% said they planned to cut their weighting in the next year.
“Asia is not cheap, but it is cheaper than developed markets and this, coupled with the long-term growth potential, makes it reasonably attractive in our view,” says McDermott.
“While it is a big continent, with frontier, emerging and developed markets, there have been a couple of trends which have been widespread. Namely better corporate governance and, on the back of this, rising dividends as corporates look to return value to shareholders.”
When investing in Asia, a decision must be made as to whether to go down the Asia Pacific ex Japan route, or include Japan into the mix.
Over the last 20 years, the former has outperformed, but McDermott says it comes down to investor preference.
“We just happen to prefer Asia ex Japan and then allocating the proportion we want to specialist Japanese managers,” he says.
“Our cornerstone has been Stewart Investors Asia Pacific Leaders. It is a great fund that doesn’t disappoint. Another company that is strong in Asian equities is Schroders, while we liked the Newton Asian Income Fund when it was run by Jason Pidcock, and followed him to his new fund, Jupiter Asian Income.”
Dobbs argues that investors today should not focus on the region’s vulnerabilities two decades ago. Instead, he says the real question is how the region generates growth today.
“The economies are maturing and demographics are less favourable – there is far less scope to raise growth through deployment of amble labour and urbanisation, possible exceptions being India, Indonesia and the Philippines,” he says.
“But lower growth does not necessarily mean lower shareholder returns. The companies I look for are disruptive in the way they use technology or are benefitting from shifts in consumer spending and the rise of the middle class.”
He concludes: “There are never any guarantees when investing, but one of the lessons I took from the crisis is that it’s generally right to buy Asian equities during such times.
“It’s not an opportunity we expect to see in the near future but in the meantime we’ll continue hunting for stocks that show promise to grow regardless of the continent’s wider fortunes.”
