Professional investor Craig Ray, of Wilson King Investment Management, tells MoneyWeek where he’d put his money now.
As private-client fund managers, the world is our oyster: there are few regions or assets that we can’t invest in. We’re currently attracted by the growth potential of southeast Asia and Latin America, and several of our core holdings are in funds that invest in these areas. Of course, stockmarket performance in these regions are often volatile and we always look for fund managers with their feet firmly on the ground.
One event that forced Asian companies to shape up was the 1997 Asian crisis. It therefore came as something of a blessing in disguise. Since then, firms have raised their return on equity and dividend payments, and lowered debt.
They have also increasingly had to answer to shareholders. Consequently, the rise in Asian markets over the last two years has been underpinned by firmer foundations than were in place before 1997. That was certainly the view of the companies and fund managers I met on my last trip to the region.
Our first investment in the Far East was the Aberdeen New Dawn Investment Trust (ABD), which invests in Asia Pacific ex-Japan. The superb performance of both the fund and the countries in which it invests gave us the confidence to buy more specialist funds, such as the Aberdeen Asian Smaller Companies Investment Trust (AAS) and the Aberdeen New Thai Investment Trust (ANW).
At the start of this year, we sold some of our investments in Japan and put the proceeds into the Aberdeen Thai Investment Trust. Although Thai shares have doubled since 2003, they are still cheap in valuation terms, trading at around 12 times earnings (compared with Japan’s 45 times estimated earnings). The Thai government recognises the need for change and has put forward reform proposals to encourage domestic demand and corporate responsibility.
To gain exposure to the Chinese, Hong Kong and Taiwanese markets, we are invested in the JP Morgan Chinese Investment Trust (JMC) and the First State Greater China Growth Fund. The Chinese stockmarket hit an eight-and-a-half-year low in October 2005 before beginning its rally – yet throughout that period, the Chinese economy grew strongly.
There are now lots of Chinese businesses wanting to come to market and there is evidence that domestic demand for shares is on the rise after the government put through a series of shareholder-friendly measures. These two factors should help the stockmarket maintain its upward momentum.
Hong Kong and Taiwanese stockmarkets are especially interesting because they have domestic companies operating in China. You can therefore profit from Chinese growth without exposing yourself to the risk of Chinese corporate governance.
We are also keen on Latin America: its stockmarkets are continuing the strong performances that we saw in 2005. We particularly like the Invesco Perpetual Latin American Fund and the F&C Latin American Investment Trust, soon to be renamed the Merrill Lynch Latin American Investment Trust (MLLA).
We do not at the present time have any exposure to funds that invest in just a single country in Latin America. I am going to visit some of the Sao Paulo-based companies we are invested in next month and hope to get a better feel for the markets while I’m there. I would be able to tell you more when I return, but what is certainly evident at this stage is that this is a very exciting region for investors.