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Pidcock: Trump may worry markets, Brexit shouldn't
Markets may fret over rise in protectionism should Donald Trump become US president, but should not fear Brexit, says Jason Pidcock.
As Jason Pidcock prepares to launch the Jupiter Asian Income fund for his new employers, the fund management heavyweight believes that after a period in the doldrums for the region, now is a good time to invest.
Pidcock was in charge of £4.6 billion at the helm of the Newton Asian Income fund, which he launched a decade ago, and quit Newton last summer to join Jupiter Asset Management.
'I do think this is a good time,' he said, ahead of the launch of his new fund next week. 'Valuations look better,' he added, arguing that unease over slowing growth in China was now better reflected across the region.
But among Pidcock's biggest fears is a resurgence in economic protectionism around the globe. While the rise of populist leaders is a perennial concern for managers in emerging markets, Pidcock is eyeing the US president race, where leftist candidate Bernie Sanders has sprung a surprise with the strength of his bid for the Democratic candidacy, and right wing populist Donald Trump has surged ahead of rivals in the Republican race.
'I'm not expecting Bernie Sanders to become president,' he said. 'I still can't bring myself to expect Donald Trump becoming president,' he added, but said victory for the property tycoon would heighten the risk of economic protectionism.
'He does seem like he's an impetuous person – you've got to assume there would be higher risk,' he said, adding that much would depend on the identity of the vice-president and their capacity to reign in Trump, should he enter the Oval Office.
'The most unpleasant thing about him is his vulgarity – that shouldn't make a difference to markets,' he added.
Pidcock was meanwhile dismissive of the fears that have hit markets over the possibility of the UK's exit from the European Union. The pound has slumped to a seven-year low against the dollar after prime minister David Cameron announced the date for the referendum and London mayor Boris Johnson pledged his support for the 'out' campaign.
Pidcock argued sterling's tumble was irrational. 'I actually think the UK economy will thrive if we leave,' he said. 'When people talk about the fear of the unknown, that's not a reason [to remain in the EU]. We should embrace the opportunity,' he said.
Big on Australia
Pidcock's new fund will differ in some respects from his old one at Newton, which has halved in size since his departure.
He will manage a tighter range of stocks, of between 40 and 50, with a greater focus on bigger companies, which around 60% of the fund expected to be held in companies with a market capitalisation greater than $10 billion (£7.2 billion).
Pidcock will also be subject to less stringent yield requirements. In his old fund he was only allowed to invest in shares with a greater yield than the index, but this restriction has been dropped, giving him more scope to invest in lower-yielding, but higher growth markets like the Philippines and Asian healthcare stocks.
But as with his old fund, Pidcock is building a new portfolio that is heavy on the region's developed markets, like Australia, and lighter on developing economies.
'Australia is one of the most underappreciated investment stories in the world,' he said. 'It has not buckled with the decline in mining prices like Russia and South Africa have done,' he said.
However, none of this exposure will be in the mining sector, which Pidcock is shunning until there are 'more distressed asset sales, bankruptcies and dividends down to a level which is clearly sustainable'.
He does not place much stock in the miners' rally from 12-year lows since mid-January, a surge that has started to come unstuck with two days of heavy falls.
'With sectors like this, when they fall hard, it is very easy to have a sharp recovery. We won't necessarily see new lows in this sector, but at this level I see no reason to march back in,' he said.
Indian stocks will also be absent from the fund, due to their low yields and high multiples following the rally in the country's stock market under prime minister Narendra Modi.
Pidcock is planning to be 'underweight', or holding proportionally less than his benchmark, the FTSE All World Asia Pacific ex-Japan, in China.
'I'm likely to remain underweight China for some time,' he said, arguing the country's politics, alongside its slowing growth, presented a barrier to investing. 'It does remain a communist country and I don't have as much confidence in the government as those in Singapore or New Zealand,' he said.
'That doesn't necessarily mean the rest of the region will be brought down by China. When Japan's growth rate slumped in the early 90s that didn't cause a problem for the rest of the region.'
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