Each week, a professional investor tells MoneyWeek where she’d put her money now. This week: Cressida Pollock, fund manager at Somerset Capital Management.
Company visits form an essential part of our process at Somerset Capital. I have spent the last four months visiting operations and management throughout southeast Asia and the greater China region. This has reaffirmed our long-term confidence in China.
We expect some volatility in 2010 and valuations are overheated in certain sectors. Meanwhile, a bubble has developed in the mid- to high-end property sector in Shanghai and Beijing. Nonetheless, even here, some good value remains in companies such as Shanghai Industrial (HK: 363), a conglomerate owned by the Shanghai government with interests in property, tobacco and infrastructure. A recent acquisition has catapulted this company into the property big league. Unlike other companies it has not acquired pockets of land. Instead, it has focused on the coasts and inland areas away from Shanghai. This has allowed it to continue to exploit its relationship with the government while moving out of the hot Shanghai market.
Further, Shanghai Industrial offers diversity to those investors worried about the cyclical nature of the property business. For example, its toll roads are the best in Shanghai and another water acquisition is likely this year. The tobacco business remains stable and the company pays a good dividend. The firm trades on 9.8 times 2010 forecast earnings.
One question still hanging over the region is whether consumer retail spending will be able to make up for a loss of consumption in the United States. But having visited Shanghai’s luxury malls, it looks quite possible that the Chinese will overtake Americans as the world’s biggest consumers. China, after all, already boasts the largest auto market in the world.
And while China’s government is looking to rein in lending, we consider it unlikely that Beijing will take any action which might significantly hurt growth. We therefore still like the look of stocks such as Ports Design (HK: 589), the high-end clothing retailer and (through its subsidiary) mall operator. Ports Design offers same-store sales growth of 15% for the next two years and a dividend yield of around 3%. It is now valued at 19 times 2010 earnings.
Air travel had a bad 2008 and first half of 2009, but has since recovered strongly. While we think that making money out of airline stocks is more about market timing than company fundamentals, we still like the Chinese travel story. A decent play is a stock called Travelsky (HK: 696). This company has a monopoly on the provision of IT for passenger ticketing and is branching out into the online hotel booking business. The stock has pulled back some 20% in recent weeks and we think it now offers value at 11.5 times 2010 earnings.
In October I visited the Philippines; one of the best performing markets during the recent financial crisis. It has also lagged the recovery. The market remains cheap, if illiquid, and is likely to rebound if there is a business friendly result in the presidential election in May. We like Energy Development Corp (PM: EDC), formerly part of the Philippines National Oil Corporation. EDC is one of the world’s premier geothermal field operators. It trades on 11.7 times 2010 earnings (try brokers Brewin Dolphin on 0845-213 1000 or Boom.com.)
The stocks Cressida Pollock likes
| 12-month high | 12-month low | Now | |
|---|---|---|---|
| Shanghai Industrial | HK$44.85 | HK$17.10 | HK$35.00 |
| Ports Design | HK$29.65 | HK$7.30 | HK$21.90 |
| Travelsky | HK$8.25 | HK$2.80 | HK$6.20 |
| Energy Development | PHP5.30 | PHP1.79 | PHP5.00 |