Every week, a professional investor tells MoneyWeek where he’d put his money now. This week: Philip Ehrmann, manager of the Jupiter China and Asian funds
Asia currently offers some of the world’s most dynamic growth prospects. Economic and earnings fundamentals are strong in most markets, helped by continuing infrastructure spending and rising consumerism.
The region should also be less affected by ongoing credit-market woes and any US slowdown. Asian banks have much smaller exposure to the US subprime mortgage sector than their Western counterparts, while the region has become less dependent on US demand.
China’s economy is growing at more than 11% a year and looks set to overtake Germany’s this year to become the world’s third largest economy.
While inflationary pressures and strong investment growth are prompting the Chinese central bank to raise interest rates, I’m confident that economic momentum will be maintained in the run-up to the Beijing Olympics. Likely beneficiaries are those in energy, infrastructure and consumer finance.
China Oilfield (HK:2883) is a mid-cap provider of oil drilling and transport services mainly to CNOOC, China’s largest offshore explorer. Its earnings rose by more than 60% in the first half on increased efforts to look for new offshore oil and gas reserves.
Its asset values are gauged by day rates for drilling rigs and vessels, which are likely to keep rising in the next few years. The group listed on the Shanghai market this autumn, raising $897m, and is expected to use the funds to expand, possibly through a corporate acquisition.
CC Land (HK:1224) is a mid-cap property developer, operating in the cities of Chongqing and Chengdu, two of China’s fastest-growing property markets. The markets are benefiting from the government’s ‘Go West’ strategy, a drive to narrow the wealth gap between prosperous eastern coastal cities and poor western regions.
In Chongqing, the group has won a site to develop in a prime location next to the city’s technology industrial estate. Prices of apartments and houses, which until recently had lagged the major cities, have risen sharply in recent months as many national developers have put in bids for new projects.
Small-cap diversified financial services firm Min Xin (HK:0222) holds a large stake in Xiamen International Bank (XIB). Min Xin’s share price has rallied after strong first-half results, boosted by a 90% surge in XIB profits.
China’s financial reforms are bringing banks into the equity market and city banks, such as XIB, are expected to follow the recent spate of initial public offerings of large banks. If XIB seeks listing, Min Xin should see a significant capital gain. Even after its recent surge, the share price remains at a considerable discount to its net asset value.
Global equities have seen sharp corrections this month due to fears over credit market problems as large banks, such as Citigroup, announced massive write-downs. Asian equities were not immune to this slide, but we expect them to rebound once these concerns run their course.
China is willing to keep diverting excess liquidity to overseas markets, while Hong Kong’s financial institutions should benefit from falling US interest rates, as the Hong Kong dollar is pegged to the US currency.
Although larger-cap stocks seem expensive after their recent strength, the mid-cap area has further scope for growth as they have not enjoyed the same rises as their larger peers. The performance of mid-caps has been driven by earnings, which have generally been better than forecast. I expect this to continue long term.
The stocks Philip Ehrmann likes
Stock, 12mth high, 12mth low, Now
China Oilfield, HKD22.85, HKD3.95, HKD17.46
CC Land, HKD18.00, HKD0.52, HKD12.10
Min Xin, HKD6.71, HKD2.38, HKD4.73