Asia’s problems are ‘past the worst’: Kwan

Fidelity’s Polly Kwan has claimed Asia is “past the worst” in terms of problems that have been plaguing markets of late.

Ms Kwan, who runs the group’s offshore $335m (£199m) Asia Pacific Dividend fund and the recently launched onshore Asian Dividend fund, said the developing Asian region had been impacted by a “number of factors that have led to negative investor sentiment”.

These included the reduced levels of economic support being delivered by the US Federal Reserve to the world’s largest economy, concerns about China’s financial system and political uncertainty in countries such as Thailand, where the counter-corruption agency has called for the impeachment of prime minister Yingluck Shinawatra this month.

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“In spite of all of these uncertainties, I believe that most of these issues have either an end in sight or we are at least past the worst,” Ms Kwan said.

“Investors who avoid investing in developing Asian markets may miss out on a lot of valuable opportunities.”

Ms Kwan said the impact of US tapering on developing Asian economies was “largely priced into the markets” last year, as indicated by its underperformance in the second half of 2013. “In fact, the threat of tapering has had a bigger effect on investors’ psyche than the actual act itself,” she said.

“This is because a large amount of foreign capital has already left the Association of Southeastern Asian Nation [Asean] markets in anticipation, so tapering will now have less of an impact.

“Also, unlike in 1997, Asean companies have been relying on domestic bank loans and local bond markets, so the removal of foreign capital has minimal impact on company funding.”

Elsewhere, the manager said she had cut her weighting in China amid “stretched” valuations in the region.

“The exposure to certain Chinese software and smartphone equipment companies has been reduced as their valuations were getting stretched,” she said.

“I have also decreased holdings in Chinese real estate companies, as property transaction volumes have declined after the implementation of anti-speculative policy measures.”

The manager said she was still positive about other areas of the world’s second largest economy, though.

“We’re more optimistic about China’s construction and engineering plays as they are poised to benefit from an increase in public spending on public housing projects,” she said.

Ms Kwan also said she had exposure to Australia and New Zealand, an area she said was “overlooked” by UK and European investors.

“These two markets consist of plenty of well-developed companies that have proven business models and attractive dividend yields,” Ms Kwan said.

She said she liked banking, materials and telecommunication stocks in Australia and building material companies and airlines in New Zealand.