Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Edward Stileman, assistant manager of the Waverton Asia Pacific Fund.
We follow a three-prong investment philosophy built on 35 years of experience. Firstly, we value pragmatism – don’t tie your flag to one mast (‘growth’ or ‘value’). Look for the best investment ideas and be disciplined. Secondly, we believe in unconstrained investing: investments should come from idea-based stock-selection and not as a result of being a hostage to benchmarks. And lastly, have conviction – run a concentrated portfolio of stocks, which allows you to get to know the companies well.
The current investment environment in Asia looks enticing to us. Any volatility resulting from inflation and/or tightening fears should be seen as a buying opportunity, especially in China. Inflation has been rising across the board in Asia for some months. But we think this is mostly a transient phenomenon led by La Niña-induced food prices and Bernanke-induced commodity prices. Once it becomes obvious that inflation will subside in the second quarter (to around 3%), investors will turn their attention back to Asia’s excellent economic fundamentals and its varied investment opportunities. With valuations below historical averages and very favourable relative to other markets, we think Asian equities could be in for quite a ride. Three stocks draw our eye at the moment.
Soufun Holdings (NYSE: SFUN) operates the leading real estate, and home furnishing/improvement websites in China. It offers marketing, listing, technology, and information consultancy services to buyers and sellers. Being the only pure play online real-estate platform in China, Soufun will be one of the major beneficiaries of the ever-growing penetration of internet usage and advertising. We strongly believe that the internet is made for China due to its inherent low-cost structure and scalability. Soufun trades at a relatively expensive valuation (17-times forward earnings), but this is more than compensated for by the massive topline growth and margin expansion potential.
Many investors and commentators remain sceptical of the sustainability of the residential property market in China in the face of rising prices and aggressive and targeted policy tightening. But the fact that volumes have held up well and prices have been reined in gives us great confidence in the level of fundamental demand. More supply this year from social housing and new launches should alleviate policy concerns. Many residential developers are trading at massive discounts to net asset value. Of these, Agile Property Holdings (HK: 3383) is our preferred play, with its solid balance sheet and excellent pipeline of launches. It also enjoys strong positioning in second-tier cities where price rises have not been so dramatic, and a goldmine landbank on Hainan Island.
Our final pick is Keppel Corp (SP: KEP), a Singapore-based conglomerate. It derives most of its revenues from its market-leading position in offshore and marine (O&M) design, construction, conversion, and repair. All the other businesses are performing well. The O&M business is particularly exciting with the recent pickup in jack-up rig orders, the likelihood of a huge order win from Petrobras, and the ongoing revival in deepwater capital expenditure supplemented by new safety rules. Ever-growing oil demand, driven by emerging markets, is pushing exploration and production further offshore; Keppel will be a major beneficiary of this structural trend.