Volatility often means bargains – and the past 12 months have been full-on bargain hunting territory for active fund managers, as geopolitical concerns continue to wreak havoc with global markets.
Asia has suffered more than most, as the US-China trade war continues to create a ripple effect across the region.
As we know, it is almost impossible to look at Asia without focusing on China.
The ongoing tussle with President Trump over tariffs – and the negative impact they could have – coupled with weakening external demand, have both added further strain to an economy already in the midst of a structural slowdown.
The macro picture is undoubtedly challenging. Growth in 2018 registered at 6.6 per cent, the lowest rate recorded by the world’s second biggest economy in 28 years, while unofficial estimates have placed Chinese debt to GDP at around 260 per cent.
And it is predicted to get worse: the International Monetary Fund has forecast growth of 6.2 per cent for China in 2019, but warned that a full blown trade war could hit GDP to the tune of 1.6 per cent.
However, slowing growth does not mean no growth, and in a market as big as China, there will always be opportunities. This week’s best in class is managed by someone who is very much a stock-picker at heart and, despite the ongoing concerns, has recently gone overweight Chinese equities.
Fidelity Asia Pacific Opportunities fund manager Anthony Srom says he finds it best to avoid the noise of daily news flow and instead focus on hunting for companies that can weather this storm.
Of late, this method has highlighted a number of domestically-focused names, which he believes can benefit investors in the long-term.
China now accounts for over a third (36%) of the fund’s holdings with the likes of Midea, Angel Yeast and Dongfeng Motor having recently been added to the portfolio.
Mr Srom celebrates five years on the £377m fund next month. He joined Fidelity in 2006 as an investment analyst and became a portfolio manager on the Fidelity Thailand fund two years later.
He uses a high conviction approach to Asian equities to build a portfolio of roughly 25-35 stocks, comparing what the market says about the share price of a company against his own interpretation of its valuation.
Stock selection is based on three main factors: fundamentals, sentiment and valuation.
Fundamentals include a company's financial strength, accounting quality, management team and the structure of the industry it operates in.
Sentiment covers ownership and news flow; technical features on trading volume; any behavioural changes in the share price; if there is any momentum behind the price and what this says about consensus on the stock or the countries and sectors it operates in.
Based on the fundamentals and sentiment analysis Anthony has a framework to help analyse valuations. It shows whether any stock has upside or downside potential, or is simply neutral.
It also looks at whether the prospects are improving or deteriorating and if the share price reflects these movements.