Invesco Perpetual’s Ian Hargreaves has held on to a handful of Australian stocks in his Asia Trust, in spite of his new benchmark excluding the country.
The manager said the trust’s previous benchmark – the MSCI AC Asia Pacific ex Japan index – had a 21.4 per cent weighting to Australia, but now the trust is pitted against the MSCI AC Asia ex Japan index, which does not include Australia.
This change prompted Mr Hargreaves to sell out of several Australian holdings, including Westpac Banking, ANZ Bank, property company Goodman Group and QBE Insurance, but he has kept some exposure to the country.
“We have retained exposure in selected stocks where we believe valuations are particularly attractive,” he said. These include Origin Energy and engineering services contractor Transfield Services.
In terms of the manager’s macroeconomic outlook, he said the slowdown in Asia’s economic growth appeared to be stabilising, supported by monetary policy easing such as interest rate cuts.
“At a corporate level, lower commodity prices and a slowdown in wage inflation are helping to stabilise margins and support the region’s earnings growth outlook,” he said.
“At the same time, while we believe valuation levels for the Asia excluding Japan region remain reasonable compared with developed equity markets, they are trading towards the upper end of their five-year historical range and have to some degree already priced in an improvement in earnings momentum.”
Mr Hargreaves said China in particular was easing its monetary policy in a bid to support consumer confidence, as other areas of its economy – such as exports and fixed asset investments – slowed.
“Monetary policy is gradually being eased, with other measures being introduced to support the property market and cut capacity in oversupplied industries,” he said.
“Measures such as these, combined with reforms progress in other areas, have either directly or indirectly driven the recent rally in China and Hong Kong’s equity markets.
“China’s economy is likely to need support beyond the near term, but the market’s rerating may not be sustainable unless it is supported by an improvement in earnings momentum.”
Mr Hargreaves has increased his Chinese exposure in recent months after adding to an existing position in China Mobile.
He said the trust had a “significant level of exposure” to Hong Kong and China, where he held Hong Kong-listed conglomerates, financials and US-listed Chinese internet companies.
“We have an overweight position in South Korea, relative to the benchmark index, with holdings in both large exporters and more domestically focused companies – given the government’s commitment to supporting an economy that is starting to show signs of improvement,” he said.
“We also maintain an overweight position in India, including banks and companies that are well run, and stand to benefit from targeted business reforms and an upturn in the investment cycle.”
The manager said he had also recently bought into and increased his exposure to Indian small-cap real estate developer Sobha. He said the market valuation “does not adequately reflect the earnings growth potential of its large mid-income projects due to be launched by the end of the year”.