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Fidelity's Liu tips quality stocks to outperform in Asia despite volatility
Allan Liu, manager of the Fidelity South East Asia fund, is expecting a 'slow and steady' global economic recovery.
Liu, whose fund features in Citywire Selection, expects a muted but positive environment for equities over the next couple of years, and although he thinks exports from Asia to Europe could remain muted for some time, the region's domestic growth profile will help to produce positive returns.
Slow and steady recovery
'The fund remains positioned for a mildly positive equity market as I anticipate a slow and steady global economic recovery. Asia’s exports to the developed markets could continue be weak, but the region should continue to grow at a more attractive pace than many other parts of the world due to its own structural growth drivers,' he said.
Liu thinks the economic and demographic backdrop will support Asia's continuing relative outperformance over many of its developed world rivals.
'Since inflation remains low and government balance sheets are generally robust, most countries are in a position to promote growth by easing monetary policies. I continue to see healthy balance sheets and cash flows among Asian corporates, while valuations are also attractive – providing opportunities for me to selectively build positions in what I consider better quality businesses for the longer term.'
Focus on quality companies
The £2.17 billion fund has endured a relatively tough year, posting 3.53% compared with 5.49% by the FTSE AW Asia Pacific ex Japan benchmark from the start of 2012 to 27 July. However, it has shown an improvement over the past quarter, narrowly outperforming the benchmark in the three months to the end of June.
Liu's core fund holdings in Korean carmakers Hyundai and KIA Motor have boosted recent performance after showing what Liu calls 'relatively resilient sales growth in key developed markets'. He expects the companies to emerge at the end of the global slowdown with stronger market positions.
Another key recent performer is fellow top 10 holding Bank of China, which Liu says is continuing to benefit from China's continuing Renminbi nationalisation process.
Liu has also put his faith in Chinese property developers that he has been able to pick up at 40-50% discounts to their net asset value. He says a more benign policy backdrop from central government has helped their recent performance to improve.
'Policy easing in recent months aimed to arrest the slowdown in China’s tier-two and tier-three cities has lifted these stocks. This includes such companies as China Overseas Land and Investment, the country’s largest developer by market value. Shimao Property, China Resources Land and Country Garden also saw an increase in transactions and have enhanced relative returns.'
As Liu continues to tilt the portfolio towards China's domestic consumer, booming smartphone usage has become a key investment theme. Stocks such as FarEasTone Telecommunications, Telekon Malaysia and Advanced Info Services have all been positive contributors to the fund in 2012 as growing smartphone ownership and the explosion in data usage has pushed share prices higher.
Liu also likes the strong cash generation and dividend potential of these stocks.
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