Rob Hepworth, manager, Allchurches Higher Income Fund tells MoneyWeek where he’d put his money now.
My strategy is always to be flexible and open in my investment approach and to be patient and prudent. I am conscious of the need to ensure a balanced, diversified portfolio, but believe that it is also important to seize opportunities. Broadly speaking, I currently perceive relative value in equities over bonds and in Asia over the United States.
In looking for the best high-income investments, the Asian equity markets offer a plethora of high-yielding companies with strong growth prospects. Economically, the region appears sound, with countries developing trade surpluses and building up strong foreign-currency reserves.
China has seen spectacular growth since economic liberalisation began in 1979 and I regard its continued economic renaissance over the medium to long term to be a near certainty. While the initial story was based on export-led growth, the economy is now becoming more balanced, with domestic demand playing a greater role.
For example, the rapid growth in the Chinese economy has put a strain on its infrastructure, with demand for electricity creating supply shortages. Huaneng Power (HNP) is a coal-fired electricity generation company operating in mainland China. Since it was established in July 1994, it has grown to become the largest independent power producer in Asia, owning 24 power plants. The company is in the process of developing and constructing new plants, which will enable it to increase production by a further 25%. It currently offers yield of more than 4% and should be able to grow this dividend further.
China’s growth story may be compelling, but other countries in the region also offer good opportunities. Yellow Pages Singapore (SP:YPG) is, as its name suggests, the firm owning the Singaporean version of the yellow pages telephone business directories, which provide a predictable source of cash generation. The business had experienced a decline in its penetration rate for a number of years as fewer people collected the directories, but the the firm recently reversed this trend by moving towards door-to-door delivery (the UK model). The company is trading on a yield of around 7% and we are anticipating a strong recovery in its operating performance in 2006.
Malaysia also offers some attractive, high-yielding firms, such as Malaysian Oxygen (MTOXF) and Fraser & Neave (358099), which both yield around 7%. Malaysian Oxygen is a producer of medical and speciality gases, with a strong market position in Malaysia and the surrounding area. Air Liquide and BOC, which are among the world’s largest industrial gas producers, are both shareholders and Malaysian Oxygen is a key supplier to the expanding steel, petrochemical and electronics sectors. It is generating strong cash flow and is committed to returning a high proportion to shareholders.
The stocks Rob Hepworth likes
12mth high 12mth low Now
Huaneng Power $32.83 $25.92 $28.42
Malaysian Oxygen $3.57 $3.28 $3.58
Fraser & Neave $13.93 $9.12 $13.51
Yellow Pages SGD1.81 SGD1.16 SGD1.44