Veteran Asia investor Hugh Young believes the recent emerging markets sell-off has gone too far but that it will also likely lead to value returning to Asia as a result.
Speaking to Citywire in Aberdeen Asset Management’s Singapore office, the former Citywire AAA-rated manager admitted his performance has suffered in the past year as emerging markets as a whole took a hit in 2013.
‘We are having one of our bad patches but I think it’s just another blip among other blips,’ he said. ‘When we look at our companies in our portfolio there is a handful that is not doing well but most of them are doing fine.’
‘It’s interesting to see the revulsion against emerging markets now. To me it seems illogical. Logical when you look at the economies, but illogical when you look at the companies.’
While companies’ earnings per share are not as high as they once were, added Young, there has also been a lot of macro movement with many investors getting out of emerging markets and Asia.
‘It feels as though the tide has swung too far. My intuition as an investor is there is some good value coming out of here. We were at 15 times earnings before and now we’re at 11 times.’
‘Value is certainly returning and anyone who has a long-term view will be dipping their toes back into Asia.’
While he still believes the consumer sector is still the place to be in Asia for the next ten years, he has been slightly trimming his exposure to the sector as it has performed well in recent months and valuations are tight.
Indonesia over China
Across his funds his main area of research is, and has been for some time, China, albeit for very little reward, he said.
‘We’ve found it very hard to find quality companies in China. We’re finding better Indonesian companies that we are more comfortable on.’
The policy around stock ownership in China is unclear and while some companies in the country have done well recently. He said he has never been tempted to add them for short-term boosts to his performance.
He currently has very little exposure to China, albeit some indirect exposure through Hong Kong to the country’s tech sector, he added.
While Young has not added any new stocks to his portfolios over the past six months, another area he is focusing his research on is Japan.
‘Japan is a big chunk of pan-regional funds but compared to benchmark we are underweight.’
‘We find there are some good companies in Japan, especially in small caps, but there’s still a huge battle going on there on corporate governance.’
In some cases, he said, shareholders were not guaranteed to be granted access to annual meetings of certain Japanese companies.