Beyond China: the diverse landscape in Asia
Asia has too often been pigeon-holed into a single growth story: China. In reality, Asia is not h...
Earlier this week we co-hosted one of our popular speed-dating events – but, as usual, romance wasn’t on the agenda: instead, we invited seven journalists to interview seven fund managers and get a story in just seven minutes.
While the journalists concentrated on getting their investment scoops, we took the opportunity to ask some questions of our own.
The fund managers were:
Edmund Harris, Guinness Asian Equity Income
Gary Potter & Scott Spencer, BMO MM Navigator Distribution
Nicolas Trindade, AXA Sterling Credit Short Duration Bond
Bertie Thomson, Brown Advisory Global Leaders
Chris Garsten, Waverton European Capital Growth
James Thomson, Rathbone Global Opportunities
Matt Tonge, Liontrust UK Micro-Cap
Bertie: Electronic Arts. It’s an American video game company and most people will know it for its FIFA football games. It’s basically created a digital economy for the game – you buy the game, collect cards and tokens, buy and sell on it, etc. It’s lagged in recent years, mainly because another shooting game it makes has been ousted by Fortnite, but we think that, in the long-term, Electronic Arts will do well thanks to its subscription and streaming services – it could be the Netflix of gaming. If you make the right content in gaming you can make money.
Chris: Ambu. It’s recently had a change of management. I saw them with a broker and there was so much interest, they had to open the room up to get everyone in. The company has disappointed recently and a lot of managers are shorting the stock. But I think that makes it interesting. Historically the industry has made reusable products – endoscopes. But new technology means they are now making them disposable. This goes against current trends of recycling, but if you think about it, this is probably one product you don’t want to reuse! Using disposable endoscopes will cut infections, especially for very ill people who are more vulnerable to them. The new CEO has invested his own money in the company and I like it – the story has changed.
James: Rather aptly, I own Match Group, which operates more than 45 dating services worldwide including Match.com and Tinder. It’s up 90% this year and is the best performer in my fund – but it is also the riskiest stock. Facebook announced a while ago that it was venturing into the online dating space. It hasn’t got much traction yet, but it could be a big competitor, so I’m watching it carefully. 40% of people meet on the internet these days though, so it’s a big market too.
Edmund: We have a one-in, one-out philosophy. Last company we bought was Godrej, an Indian consumer staples company. It was cheap versus other companies in its sector and has a number one position in shampoos – we like companies that dominate in particular areas. There is momentum returning to domestic India and we think this will be a tailwind. To make room for it, pacific textiles came out. It makes textiles and one of its largest clients is UNIQLO. Although it was cheap and paid a high dividend, profit growth was proving hard to come by, so dividend growth was too. Its volume sales were suffering. The quality of its goods is high, but there are headwinds in the sector and in a less certain world I prefer companies that can generate profit growth.
Matt: Diaceutrics. It is helping big pharmaceutical companies bring a wave of targeted drugs to the market. It designs, creates and implements strategies to bring personalised medicine to market faster and central to this is its collection of data. Big pharmaceuticals sometimes struggle when a drug works on some people but not others – they need to educate doctors on what to look for, get patients to try it, get data collected, etc and sometimes that is easier said than done. Diaceutrics has the data that can help them. They are actually saving lives.
James: I hold a number of companies in the payment network in my top ten – PayPal, Master Card, Visa and Global Payments – a merchant acquirer. Most people will have heard of the first three and will know that they make a charge when their payment systems are used. A merchant acquirer used to just be ‘dumb’ terminals but now they are wrapping value around their transactions – they can be used in infantry systems, scheduling software, accounting software, etc – so they are now a real service for businesses and smaller companies in particular are very ‘sticky’ customers. 60% of the world’s transactions are still in cash so it is still a growth story.
Nicolas: Car makers. That’s a bit against consensus, I know. But they sit on a lot of cash, and are used to going through economic cycles. And, as I invest in short-dated bonds which mature in just a couple of years, I have a clearer picture of the fortunes of a company over a short time frame – I don’t need to worry about where they will be in five or ten years, just that they can repay their debt in one or two.
Chris: An area I like is Northern Europe because the companies focus better. In central and Southern Europe the mentality is generally that to give money back to shareholders is a failure in some way. So these companies develop another product or service instead and the cash flow goes there – as does most of management time. Then the core business gets forgotten for a while. Northern European managers tend to remain more focused. I’ll give you an example: Heineken owned a Finnish beer company called Hartwall. Heineken got distracted and spent too much time thinking about a business that only represented 2.5% of its overall sales. Heineken divested the company and it was taken over by a smaller one – who doubled profits in three years: they focused on their core.
Chris: I was in France, in Paris the week before last on a three-day conference. What amazed me most was how relaxed the companies were. The press is filled with headlines about trade wars, Trump and a slow down but the companies were OK. You can be too relaxed, but I thought it was interesting.
Scott: Last year, two of the team went to Japan and we we spent some time in Singapore and Hong Kong. When we travel we tend to see a lot of fund mangers, but also analysts. In Singapore and Hong Kong, for example, we had 17 manager meetings and 22 analyst meetings. We like to meet analysts and sit in on team meetings as these people tend to be the source of fund manager ideas. So if the analysts aren’t any good, even the best fund manager could struggle. We also accompany them on company meetings to reaffirm our view of their investment process and how it works.
Bertie: The US. The economy is still in good shape and there are some fantastic businesses, especially in the mid-cap space.
Edmund: China. The thing that truck me the most was the changing consumer patterns. The growth in household income and city wages has led to changing consumer styles. It’s not just about buying white goods any more, it’s about 25-45 year olds and what they aspire to. So smart/casual office wear is popular in retail, owning your own car – with Chinese brands now being as acceptable as western brands – and the way things are bought and sold: it’s not just e-commerce but the platform the e-commerce is on. Many younger Chinese still live at home, but it means they spend a lot of their social time away from home – so they use their mobile phones not a home computer to go online.
Nicolas: The beauty of being in London is that most companies come here. I go to a lot of roadshows though – where companies present the terms of their bonds. You can have 121 meetings or go to lunches with a big group. I like the latter as you get to hear questions from other people who may be looking at another angle or thinking of something I haven’t thought of yet. I also like going to the same company’s equity presentation – to make sure the company isn’t telling different stories to different investors!
Matt: From a personal point of view, trade wars – they are hard for companies to get around when the rhetoric changes so quickly. From a fund point of view, Brexit. But UK companies have already done what they can to mitigate the risks and hopefully the ones we invest in have pricing power, so now we just have to wait and see.
Edmund: Trade wars are the most disruptive to emerging markets. As far as rebellion against globalisation is concerned, there may be elements that people disapprove of, but it’s hard to reverse the trend of manufacturing being concentrated in areas with the right skills and infrastructure, etc. These are natural economic forces that are in place.
Gary: The trade wars will come and go – just like the Greek debt crisis did, for example. Most of these things – and the uncertainty they cause – we can out perform. But deflation would be negative and worries us the most. Deflationary forces would kill off growth though and it would be hard to reignite – like it has been in Japan.
Nicolas: Trade wars because they are so unpredictable. That’s been the main issue with them since the beginning. Markets worry about it and react to all the news. My second worry is central banks. The European Central Bank (ECB) meeting last week was a wake-up call for investors – central banks can only go so far, or so negative, before their actions become ineffective. Christine Lagarde, becomes the new president of the ECB in November and she’ll have to have some tough conversations with eurozone members. Politically it’ll be a difficult position.
Bertie: From an equity investment prospective, trade and currency wars – but they will play themselves out. Central banks are the biggest risks to markets. The current interest rate environment is not normal and some investors are not valuing stocks correctly – they are valuing them as if the low cost of debt will go on forever and we don’t think it will.