Introduction
In performance terms the region has delivered reasonable double-digit returns for the year to January 15, with the MSCI AC Asia-Pacific ex Japan index returning 14 per cent, while the Investment Association Asia-Pacific ex Japan sector average was marginally less with a return of 13.86 per cent. However, both outperformed the MSCI World index return of 9.93 per cent for the same period, according to data from FE Analytics.
The sector has also performed well in comparison with the other regional equity peer groups, with the 12-month performance figure beaten only by the Investment Association China/Greater China sector average of 15.46 per cent and that of the North America sector return of 15.32 per cent.
But in spite of these figures, Asia has been overlooked in recent months as the focus has been on Japan’s monetary policy machinations, Europe’s faltering growth, and the threat of deflation in the UK and elsewhere in developed markets.
Mike Kerley, manager of the Henderson Far East Income investment trust, notes: “In contrast to the developed market gloom, the Asia-Pacific region is different: there’s a powerful ‘reform’ agenda creating specific catalysts that may drive markets there.”
He explains that with changes of leadership in China, Thailand, India and Indonesia “investor perceptions are beginning to shift for the better [in these regions], along with share prices”. These markets “warrant a closer look”, he adds, once you take into account a region-wide clampdown on corruption and an overall drive to improve efficiency.
The manager points to reforms in South Korea, where the recently appointed finance minister announced a raft of tax measures to unlock corporate cash reserves, while the election of Joko Widodo in Indonesia in July is expected to lead to the implementation of reforms in such areas as energy and fuel subsidies.
But it’s not all plain sailing for the region, with the latest Asia outlook from Swedish financial group SEB suggesting that Asia’s growth in 2015 will be “flat to down in some economies”.
The focus paper from SEB’s Asia strategy team adds: “The exceptions are India, Indonesia, Thailand and Hong Kong, since they have faced significant slowdowns in late 2014. The growth momentum can accelerate towards the fourth quarter when the US economy is on a firmer footing and Asian central banks will also start to hike mildly to keep up with the Fed.”
With such a mixed outlook for the start of the year it seems that macroeconomic and geopolitical events will continue to affect the drivers of performance, and if the anticipated reform agendas in countries such as India, Korea and Indonesia come to fruition, the region could deliver more to investors than might have been forecast.
THE PICKS
Fidelity Emerging Asia
This is one of the smaller funds in the Investment Association Asia-Pacific ex Japan sector at just £15m. It was launched in July 2011 with current manager Dhananjay Phadnis taking over in November 2013. He focuses on high-quality companies with sustainable growth prospects and has opted for information technology as his largest sector weighting. The fund sits in the top quartile of the sector over one and three years, and tops the 12-month performance table to January 15 with a return of 27.73 per cent.
Baring Eastern Trust
This £30.8m fund managed by HyungJin Lee aims to deliver returns by investing in economic sectors in Asia and the Pacific region. Launched in 1985, its long-term performance has been patchy, sitting in the third quartile of the sector across five and 10 years, but this has picked up more recently. Its three-year return of 30.8 per cent has moved it into the top half of the sector, while the 12-month return of 21.79 per cent has propelled it into the top-10 best-performing funds to January 15. It will be interesting to see if this trend continues, particularly as its largest sector weighting is to financials, while its largest country allocation is to China at 30.7 per cent of the portfolio.
EDITOR’S PICK
Investec Asia ex Japan
This £156.5m fund entered the Investment Adviser 100 Club for the first time in 2014 as it notched up consistent outperformance under manager Greg Kuhnert. Launched in March 1997 the fund invests in companies in the Asian region ex Japan, but with a focus on firms expected to benefit from Chinese economic growth and development. It has delivered an impressive 266.5 per cent return for the 10 years to January 15 compared with the sector average of 195.54 per cent, and its largest sector weighting is to financials at 39 per cent of the portfolio.
