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Schroder's AA-rated Parbrook: the 'fictitious' China story
by Matthew Goodburn on Oct 11, 2013 at 12:42
'Nothing is wrong with the Asean economies but they were overdue a slowdown as they have looked frothy for 18 months,' he said.
'Asean stocks did well until the end of June and we had sold most of them by then but it was what we did not own that hurt us as there has been a dash for trash with everyone rushing out to buy highly geared cyclicals.'
'State-owned Chinese enterprises and Korean companies have done well since then but they have bad corporate governance and Korean companies don't pay dividends. Macau gaming stocks and Chinese internet stocks are also going up but they also don't score well on governance.'
'What has been going down has been Asean stocks such as Thai banks and Hong Kong industrials and we have been able to pick up some Hong Kong property stocks on 50% discounts to NAV.'
Overweight Hong Kong blue chips
Parbrook's biggest overweight remains to traditional Hong Kong blue chips, which he views as the most transparent companies and best dividend players in the region.
He now believes the 'old Hong Kong' companies - such as conglomerates Swire, Jardine Matheson and Hutchison - look too cheap considering the diversity and quality of their businesses.
'These three companies have 400 years of corporate experience. They are well run and well diversified, are almost completely net cash and trading on 11 times earnings. Compare that to new Hong Kong companies such as [internet firm] Tencent. That is quality but looks expensive.
Parbrook also continues to like Taiwanese tech and said that Asia currently looks to be 'fair value at around 7-9% growth per annum'. He remains relatively optimistic about the region's fortunes over the mid to long term.
'We cover 600 stocks and the average upside to fair value is now around zero. But you must strip out Chinese banks and then you are looking at 5-6% capital growth for the region and a potential 4% dividend also. In the 'new normal' environment 10% annual total return would be pretty good.'
Over Parbrook's tenure on the fund from 1 October 2010 to 9 October 2013, the fund has returned 18.1% compared to 11.7% by the MSCI AC Asia ex Japan TR USD benchmark.
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