The managers cite a variety of structural concerns, which are preventing them from taking the plunge in the region.
Fidelity’s Jeremy Podger has just 2 per cent of his nearly £1.5bn Global Special Situations fund in Asia Pacific ex Japan.
The manager said he was unlikely to increase this weighting because, while the markets may be cheap, he does not expect high levels of return.
“In the developed world you have seen the return on capital forever expanding, but in China and other capital-intensive markets lots of capital has been sucked in and returns have been grinding down,” he said.
“That’s why when you look at the pattern of forecast returns for the region you have net downgrades. The Asia trend is very negative.”
The manager said that Asia could not be viewed as a homogeneous region, but one with many individual countries that appear blighted by a variety of structural issues.
“Clearly, what investors are expecting to see is a kick-start to the economy. People are getting excited about that but I only have a small amount of exposure and would let some of the euphoria dissipate before increasing it.
“China is at the other end of the extreme, though. That market has been a very poor performer and the domestic market is down year to date, while the Hang Seng [index] has been pretty lacklustre. Recent indicators are a bit ambivalent.”
Invesco Perpetual’s chief investment officer Nick Mustoe said Asia was a “long-term valuation opportunity” but in spite of its cheap price-to-earnings ratio now, compared to other regions, he was not looking to hike his exposure.
“There may be a small increase to Asia [in our Global Equity Income fund] but we have 5 per cent in the fund now,” he said. “It could go up by 3-4 per cent but it won’t be a material increase above that.”
Max King, a global multi-asset fund manager at Investec Asset Management, said many people were claiming Asia was cheap but his own analysis had uncovered why.
“What makes it cheap is a lot of low-quality companies on low valuations,” he said.
“Chinese banks have got severe problems, for instance. There are one or two companies I would own but I still want to stay clear of some.”
The manager said he was most sceptical about China, which had the “wrong generation” within corporate management.
“In 20 years it may well be fine but the people now are the ones who have come through the bureaucracy of China and got rich quickly,” he said.
Artemis’s Simon Edelsten agreed investors had to remain “quite fussy” when investing in Asia, in spite of the broad valuations being cheaper than other markets.
The manager of the group’s £45m Global Select fund said he “broadly agreed” that Asia was cheap, but cited key issues that prevented him from boosting his exposure significantly.
“There are considerable concerns about the overbuilding of property in China and there are worrying macroeconomic signals with GDP growth in China looking to be 5-6 per cent rather than 7 per cent,” he said.
