Few institutions have the resources to look at these under researched names on the ground but Templeton benefits from local teams in all the different emerging market regions.
The asset manager’s Indian-based team has successfully captured the rally in the country this year. They had been positive on the prospects for the Indian companies held when I last met with them in December 2013. Since then, a positive election result has seen Modi’s pro-business BJP party gaining the first majority in parliament for 30 years. As a result, there has been a sharp upward re-rating of the market.
The management team believes smaller companies remain better value than large caps, with stocks still available for purchase in low single-digit price/earnings. The managers remain optimistic on the prospects for the Indian market.
The next day saw a meeting with BlackRock where the performance in Asia has been transformed since Andrew Swan became head of Asia about three years ago.
Swan believes a large number of the high quality names in the region are now overvalued versus some of the more cyclical stocks. He is tilting his portfolio to stocks that should benefit from the economic stabilisation and recovery that is now ongoing in Asia, especially China. We then flew to Singapore to meet with Nikko Asset Management, which has recently acquired the Asian team from Treasury Asset Management. This is a fund due to be launched into the UK market, and the segregated accounts run by the firm have clocked up strong numbers during the past three years, using a flexible approach and enjoying successful stockpicking in midcaps, especially in China. This team is upbeat on the prospects for Asia.
Other meetings took place with Asian and emerging market teams at UBS, and a sustainability team at First State, which runs regional and global portfolios where companies having a positive impact on the world are held. The First State Stewart team has actually outperformed First State’s mainstream regional portfolios in Asia and the emerging world, demonstrating sustainability is not a byword for poor investment returns.
We also had some interesting meetings with JOHCM, where a global fund is run by Chris Lees and his assistant Nudgem Richyal. This two-man team utilises the fundamental research of the other JOHCM managers, together with a strong quant screening and scoring system to run a concentrated 40-stock portfolio that has delivered excellent returns to investors.
We then flew back to Hong Kong, for meetings with Allianz. The company’s recently appointed manager of the Total Return Asia Fund is delivering strong results with a small-cap strategy that could be interesting for investors wanting a more specialist fund in Asia. This was followed by an update with First State on its Asia Pacific Leaders Fund with Richard Jones, who recently become deputy manager for the portfolio. Jones has lived in Hong Kong and Asia since 1990 so is certainly a veteran to the region.
First State continues to favour high-quality names in Asia and has recently benefited from the strong rally in India, where the fund has a weighting of over 20%. Though India has seen a significant rally, the team at First State believes the Modi Government has the potential to be as transformational in the country as Deng was in China in 1989. First State Stewart is, however, cautious on valuations of quality names in Asia.