Every week, a professional investor tells MoneyWeek where he’d put his money now. This week: David Cornell of BDT Invest
We are firm believers in Asian and emerging markets, which have generated superior returns over the last five years. Even if the next 12 months prove challenging, it would be a mistake to forget that we are only part of the way through a sustained long-term re-rating.
We think Asian currencies will continue to appreciate gradually and that an interesting and potentially rewarding fillip to returns for a sterling-based investor will be to hold overseas and especially Asian assets in what remains a secular bull market.
An interesting correlation has also been noted by some commentators between the size of a country’s population and the performance of its stockmarket index over the past 12 months. In sterling terms, for example, China, Brazil and Indonesia have all done extremely well. However, we think that this has left some of the smaller Asian stockmarkets in interesting valuation and earnings-growth territory.
Neglected by some investors as a serial underperformer and with important elections due in the next few months, Taiwan looks pretty interesting on a p/e multiple of 12 for 2008, underpinned by a 4% yield. The medium to long-term story here is the likelihood of closer relations with China leading to an explosion of inward investment and economic activity – similar to that experienced earlier in the decade in Hong Kong and more recently in Macau. The population of the capital, Taipei, is some two million people.
Meanwhile, it has been estimated in tourism and travel surveys that over 44m Chinese tourists have already expressed a desire to travel to Taiwan, which is host to more of China’s cultural treasures and historic artefacts than China itself. The most simple and probably most cost-effective way to participate in this long-term tuck-away is via the MSCI iShare (HKWWM).
While it has achieved some strong returns again this year, India still offers compelling arguments driven by a powerful investment cycle. High levels of domestic growth potentially also offer some protection from the vagaries of international trade and intra-regional activity. It is time now to be more selective since certain over-regulated areas of the market deserve to be avoided and a very recent trip to the country has highlighted selected mid-caps that offer explosive growth prospects.
Indians are not afraid to spend a relatively large proportion of their disposable income on education. Delhi-based Educomp (EDSL.IN) should enjoy continued robust demand for its pedagogical services which encompass online, offline and learning centre tutorial services. Elsewhere, we like Jain Irrigation Systems (JI.IN), the largest producer of plastic pipes in the country, and a pioneer of micro-irrigation systems. This company gives exposure to the higher crop yield theme and so is also a play on soft commodities.
Despite currently being quite a modest proportion of activity in the sector, medical tourism is also an area of increasing popularity, and recent media coverage of this hot topic in the UK press will only serve to spread the idea of taking treatment abroad. After all, the thought of spending some post-procedure time recovering in Goa is somewhat more appealing than taking the air in Baden Baden.
In its latest five-year plan, the present Government has demonstrated tremendous commitment to improving India’s infrastructure which makes this a highly attractive long-term theme. Here we like power equipment manufacturer BHEL (BHEL.IN) and Ambuja Cement (ACEM.IN). Both have competent, high-quality management teams in sectors with high barriers to entry. It’s not easy for retail investors to buy individual Indian stocks, but a good fund to give broader exposure to Indian mid-caps is the Neptune India fund (tel. 020-3008 8030).
The fund managers versus the MoneyWeek babies
Last year we thought we’d conduct a little experiment and find out whether there was really much of an art to stock-picking. After all, it’s often pointed out that most fund managers fail to beat their benchmark consistently, and it’s been argued by more than a few people that you’d be as well to choose your investments by throwing darts at a list of stocks, rather than by conducting hours of fundamental research or poring over trend lines on charts.
We were sceptical – while we agree that fund managers rarely perform as well as their salaries suggest they should, there’s a lot more to investment than just randomly choosing stocks. But to test the idea, we armed three babies of MoneyWeek staff with felt tips and a copy of the FT, and encouraged them to get stock-picking.
It turns out that, sadly, our offspring are not born share-tippers. Florence (21 months) chose HBOS (–36%) and WH Smith (–14%), for an average loss of 25%; Matilda (four years old) averaged –46.5%, tipping fashion chain Marchpole (–59%) and property group Helical Bar (–34%); and Dotty (22 months) went for drug group SkyePharma (-54%) and electronics company Alba (–65%), losing 59.5%% overall. It seems the fund-management industry can rest easy.