Citywire AA-rated Mark Davids (pictured) sees more opportunities in China, Hong Kong, Japan and India than South East Asia, which he expects to face headwinds next year.
‘Central banks, particularly in current account deficit economies, are responding by defending their currencies, which will have a slowing effect on their economies, and we are starting to see that in corporate numbers.
'It’s difficult to say how it will end, but it’s clearly going to be tougher now than before,’ he said.
Davids heads up the Pacific regional group at J.P. Morgan Asset Management, where he has managed JPM Asia Pacific Strategic Equity A Acc USD since September 2009, and JPM Japan Strategic Value A Acc JPY since November 2007.
He sees better opportunities within companies which can take advantage of a weakening currency and a stronger US economy.
‘We have our active money in Indian tech companies, which have performed strongly as the US economy recovered and the rupee weakened, resulting in strong earnings momentum.'
In Japan, a falling yen will definitely benefit exporters, but financials would benefit even more because of the positive reflationary impact a falling yen has on the stock market and the domestic economy.'
Different strategies for different markets
Describing his approach in Japan as ‘very diversified, deep value’, he notes the team's Japan strategy valuation is around one standard deviation below the benchmark, while the strategy’s earnings revisions have been double that of the benchmark.
According to Davids, ‘Japan is under-covered because people have pulled resources out of Japan over the past years, and as a result there are more inefficiencies than before, especially in the mid cap space. We hold about 150 positions and it’s purely a value approach with a bias to cyclicals.’
While noting a pure value approach works well in Japan, Davids said the Asia Pacific strategy employed a ‘barbell approach’.
‘The Asia Pacific strategy combines value and momentum. We’ve found in Asia Pac, value outperforms in 60% of markets, and momentum outperforms in 60% of markets. Combine the two and you have a strategy that outperforms in 70% to 80% of markets.’
Since the start of 2013 to the endof November, JPM Asia Pacific Strategic Equity A Acc USD has returned 7.33% against the benchmark MSCI AC Asia Pacific ex Japan NR EUR return of 4.73% in USD terms.
Over the same period, JPM Japan Strategic Value A Acc JPY returned 27.71% against the benchmark Topix TR return of 25.89%.