Pidcock: investors just don't get Australia

‘Australia is misunderstood by a lot of investors’, says one of Asia’s top-performing money managers, Jason Pidcock, in defiance of growing concerns that – as one market analyst put it – the country is ‘a credit bubble built on a commodity bull market built on a much bigger Chinese credit bubble’.

Amid concerns about the slowing Chinese economy, Pidcock says investing in Australia is about much more than merely seeking a proxy for demand from the country's biggest customer for iron ore, coal and other commodities.

‘As investors around the world continue to seek income we think they will increasingly look to Australia. We think Australia is mis-understood by a lot of investors. If anything our weighting to Australia is likely to go up rather than come down.’

Pidcock, who is one of only a handful of investors in Asia to earn a AAA Citywire rating, runs the dividend-seeking Newton Asian Income fund , which is slightly overweight to Australia, accounting for 26% of the £2 billion worth of holdings.

He also disputes claims that the Australian dollar is set for a fall, a view that has seen some fund managers and currency experts short the Aussie. ‘Ninety nine per cent of people around the world feel the Australian dollar is overvalued. Therefore I remain confident that it’s going to hold up… the Oz dollar deserves to be strong, it is genuinely a hard currency,' Pidcock says.

Australia's exposure to the 'Asian growth story' is one of the reasons Pidcock remains confident in the country. Last year he had become more cautious towards China, but in October, when GDP data gave economists reason to believe the Chinese economy had troughed, he became ‘more neutral’ towards investing in China.

‘There is no reason for Chinese stocks to underperform anymore in the short term,’ he said. In fact in October, the Chinese stock market rose strongly after declines for most of the year.

‘Caution on China does not need to mean zero Aussie weighting. Domestic outlook is stable with flexibility to geographically diversify exports of commodities globally’, he says, reminding investors that Australia has the ‘safe haven status’ associated with a AAA sovereign credit rating.

Pidcock said that he had recently brought more shares in Anglo-Australian miner BHP Billiton, while Australia and New Zealand Banking Group is the top holding in the Asian Income fund.

The fund is yielding 4.5% and has returned 72% to investors over the past three years, beating its benchmark’s 28% return.

Hugh Young’s Aberdeen Asia Pacific & Japan fund also retains significant exposure to Australia, at 10%, through insurance group QBE, as well as miners BHP Billiton (BLT.L) and Rio Tinto (RIO.L).