There are indications that the global economic downturn has levelled off and the recovery could begin later in the year, argues Stuart Parks, lead manager ofPerpetual Indo-Pacific.
"But it will be magnified in Asia for a number of reasons," says Parks, head of Asian equities at Invesco Asset Management Ltd., in Henley-on-Thames, west of London, England.
First, Parks maintains that Asia went into the current crisis in much better financial shape than most other regions. Second, Asia's banking system is fundamentally sound and its institutions have not engaged in excessive leverage.
Third, Asia stands to benefit from a much higher savings rate than the developed world. "For the most part, Asian governments have been running sensible fiscal policies," says Parks. "They have a lot of monetary firepower to sustain their economies."
Still, Asia has been heavily dependent on exports and is counting on the stabilization of western economies. "When that happens, the intrinsic merits of Asia will come to the fore," says Parks. "If the rest of the world does not stabilize, then the ability to spend domestically will be drowned out. It will be a mitigating factor, and won't lead to economies moving strongly forward."
Parks, who selects non-Japan stocks, while co-managers Tony Roberts and Paul Chesson specialize in Japanese companies, became very bullish last fall. "For the whole of Asia, we got down to one times book value, which was historically a very good time to buy stocks."
As the managers were fully invested during the market bottom, they made few changes to the portfolio, however. "We remain in economically sensitive areas. That's where value lies," says Parks.
One long-time favourite is Samsung Electronics Co. Ltd. The South Korean firm makes liquid crystal display screens, mobile phones and semiconductors. The latter is the most important part of its business, yet it is unprofitable. "But it's losing less than its competitors. Over time, some of them will disappear," says Parks. "That's what the market is starting to focus on."
At a recent 592,000 Korean won, the stock was up 31% year-to-date. However, it is still a long way from its 52-week high of 764,000 won. "We added to the position on weakness," says Parks.
A native of Coventry, England, the 47-year-old Parks has worked in the investment industry for more than 25 years. After graduating in 1983 with a master of arts degree in modern history from Oxford University, Parks began working as an equity analyst covering UK financials for Wood Mackenzie in Edinburgh.
In 1987, his career took a critical turn when he visited Hong Kong to see Hongkong Bank, the predecessor of HSBC. "It was such a vibrant place, and it sparked my interest in Asia," Parks recalls.
Between 1988 and 1990 he worked as a UK equity fund manager at Glasgow Investment Managers. Then he moved to a British firm called Canada Life (no relation to the Canadian life insurance company) and began managing an Asian equity fund.
In 1992, Parks joined Swiss Bank Portfolio Management International. When he was asked to move to its Singapore office, he declined and in 1993 joined Groupe Assurance Nationale as an Asian fund manager.
Parks was hired by Invesco in 1994. In October of that year, he assumed responsibility for the Canadian fund, which was formerly known as AIM Indo-Pacific. Together with Chesson and Roberts, he manages about US$2 billion in assets across 10 products.
The 4-star rated Canadian fund posted a 19.5% loss for the 12 months ended April 30, much less steep than the 27.7% loss for the median fund in the Asia Pacific Equity category.
Over the past three- and five-year periods, the fund lost an annualized 5.7% and 0.3%, which were again less severe than the median losses of 10.3% and 2.9%, respectively.
Since Parks sees better prospects outside of Japan, that market is an underweighted 40% of the fund, compared with 52% in the benchmark MSCI All Country Pacific Index. However, there is an overweighted 22% in Hong Kong and China (viewed as one market) 10% in South Korea, 6% in India and smaller weightings in markets such as Singapore.
The fund holds about 90 names. Single holdings are limited to about 3.5% of fund assets Portfolio turnover has been moderate, at 63.7% for the year ended Dec. 31.
Focusing on absolute valuations, and using measures such as price-to-book and return on equity, Parks likes names like Singapore-listed Jardine Matheson Holdings Ltd. "It's a very good representative of where we think long-term growth will come from: the domestic demand story."
The conglomerate owns supermarket chain Dairy Farm, property developer Hongkong Land, and Astra International, an Indonesian car distributor. Parks believes it's trading at a 60% discount to its US$33 net asset value.
As a conglomerate, the stock will always trade at a discount. But should that discount narrow appreciably, it may be time to unload. "Hopefully, by the time we get to whatever that number is, the NAV itself would have risen quite a lot."
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