Asia star Hudson: why euro and fiscal cliff really matter here
HONG KONG: AAA-rated Toby Hudson says Asian markets are not immune from the west's macro sickness, but a 'stealth bull market' means the consumer story is still robust.
by Angus Foote on Dec 18, 2012 at 12:09
Despite a healthy macro picture across much of Asia, the euro crisis and the US fiscal cliff are still key issues because of the effect on risk appetite, according to Toby Hudson of Schroders.
Hudson, the group’s head of equity research Asia ex-Japan, is also the manager of the Schroder ISF Hong Kong Equity fund and has an AAA rating from Citywire.
He points out that global investors are the big drivers of the Hong Kong market so their willingness to take on risk really matters.
‘We’re reasonably relaxed about the macro health of most of Asia,’ he says. ‘but in the real world, what are the linkages? There are obvious linkages in trade, and that’s hugely important for Chinese growth.’
‘Asia can deal with a muddle-through scenario in the West. Because good companies can gain market share - what we can’t deal with is these huge dislocations, like a Lehman-style event.’
‘The way to avoid it is to focus on domestic stories, away from global plays. A muddle-through scenario is most likely.’
Much of Asia has enjoyed a ‘stealth bull market’ this year, Hudson says, ‘but you wouldn’t know that from the headlines.’
‘Traditional defensives have been very well bid this year, because of the search for yield, so boring old Hong Kong utilities are up 20% this year,’ he points out. Hudson has zero utilities in his Hong Kong fund, because they are too expensive.
Right now he likes the consumer discretionary sector in China. ‘For me that’s the logical place to go. I don’t think we’re at the end of a super-cycle for Chinese consumption.’
‘We’ve liked hotels and tourism, internet and healthcare in China. But I’ve never owned a Chinese steel company.’ Search engines in China, for example, are a way of playing the internet theme.
‘That’s where we’ve been putting money back, but I’ve been inching. And there’s a lot of noise and movement around index inclusions, so we’re happy to add to holdings there.’
Hudson, who took over the Hong Kong fund from Robin Parbrook in 2007, says his thinking has been influenced by structural concerns about the nature of Chinese growth.