In their recent annual review, Winterflood Investment Trusts indicated that there has been an increasing trend away from western economies and estimate that only around 35% of the investment company sector’s assets are now invested in UK stocks.
The Association of Investment Companies (AIC) has collated the views of investment company managers on the prospects for the Asia Pacific (excluding Japan) sector. All paint a positive outlook, with the Chinese economy picking up and risks to the region primarily coming from the West – particularly developments in the Eurozone and the fiscal situation in the USA.
Andrew Gillan, manager of Edinburgh Dragon Investment Trust, comments: “2012 was a good year for Asian equities. However, one needs to remember that earnings have lagged behind share prices. There was single digit earnings growth last year and around 20% returns on share prices; hence valuations today are slightly higher than they were 12 months ago. Our own expectations for earnings growth remain at single digit levels for this year but that is in a context of strong balance sheets and still healthy topline growth. A recovery in global growth would certainly help Asia but the last couple of years have demonstrated Asia’s robustness and opportunities in some of the region’s smaller economies, such as the ASEAN countries. Broadly speaking, the long-term prospects for our underlying companies remain upbeat.”
Mike Kerley, Fund Manager, Henderson Far East Income, said: “We are positive on the outlook for Asian equities in 2013. Despite the strong performance in 2012 valuations are below long-term averages and have de rated over the last two years as equity indices have failed to keep pace with corporate earnings. Global interest rates are likely to remain low and combined with the abundant liquidity provided by global central banks everything is in place for equities to perform. Especially important, is the improving environment in China, where economic data and forward looking indicators are suggesting that the direction of growth will be positive in 2013, which will be very supportive of the region as a whole.
“In a world where growth is hard to come by Asia’s underlying growth profile remains compelling and without the distraction of politics in Europe and the US we would expect Asia to bridge the valuation gap.”
Ian Hargreaves, Manager, INVESCO Asia Trust said: “Investors in the region enter 2013 with a fair degree of optimism. Asia’s equity markets finished 2012 strongly, in part thanks to signs that China’s economy has passed its weakest point. I would expect growth in China to remain in the 7-8% range, a step down from the high rates witnessed during the last decade but still a pretty impressive performance. This should provide a reasonably benign environment for the country’s new leadership to find its feet. In India, authorities are still attempting to deal with a large fiscal deficit and high inflation; both of these problems should moderate as the year progresses.
“Valuations in the region look reasonable and, if anything, are below long term averages. If the global backdrop remains stable, I think there is room for some rerating, and with earnings growth in high single digits, 2013 could provide reasonable returns for equity investors. However, the main risks to this promising outlook remain from without the region – in particular developments in the Eurozone and on-going arguments regarding the fiscal situation in the USA.”
Mike Gush, Manager, Pacific Horizon, said: “Driven mainly by companies able to provide earnings predictability, 2012 produced reasonable absolute returns across the region. Companies with a very significant top-line growth opportunity, where there is generally acknowledged to be a wide range of potential outcomes, suffered due to investor risk aversion. ‘Quality’ and ‘certainty’, particularly in terms of earnings, are very different concepts for the patient investor, which is why we remain excited about the medium to long term prospects for companies where the lead time between investment and profit is often protracted and unpredictable.”
“Several of these are found within the Energy and IT sectors where there has been significant de-ratings and in some cases sharp share price falls. In addition, with China rebalancing its economy away from rapid industrialisation, several stock market winners of recent years are likely to struggle and 2013 may prove to be a rare opportunity for long-term investors to gain exposure at discounted levels to innovative management teams and companies that will be the technology winners of tomorrow.”
Sector Specialist: Asia Pacific (Excluding Japan) share price total return on £100
Data to 31 December 2012 with a 3.5% deduction for expenses
Image by Jakub Hałun (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons