Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Andrew Beal, portfolio manager, Henderson TR Pacific Investment Trust.
We aim to identify and capitalise on the long-term structural growth of Asian economies, including India. Our investment approach is focused on maximising long-term total returns with an emphasis on bottom-up investing in high-growth companies.
In many parts of Asia, the combined forces of growing working populations, better education, urban migration and capital investment are driving sustained increases in worker productivity and, consequently, wages. Higher wages mean less competitiveness in many low-valued manufacturing sectors. Crucially, wage increases are also leading to an explosion in the number of Asians who have the desire and means to finance Western lifestyles.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
In 2010, roughly 600 million Asians fell into the group of people defined as middle income', or those with the necessary means to start thinking about buying a car or motor bike, owning a modern flat and furnishing it with a TV, washing machine or air conditioner. That figure is forecast to reach nearly one billion people by 2014. By 2020 the combined expenditure of this group is likely to have grown from around £5trn today to more than £10trn.
Latest Videos FromMoneyWeek
Firms that make good investments share certain characteristics. Firstly, they must have a strong management team with the discipline to execute a realistic strategy for growth and the flexibility to take advantage of rapidly evolving markets in the region. Secondly, management and controlling shareholders must understand the importance of transparency and good corporate governance. While standards have improved over the last ten years, too many Asian businesses still fail to deliver on their basic responsibility to deliver value to their minority shareholders. Avoiding these firms is vital.
Thirdly, winning firms have a sustainable competitive advantage in the form of scale, technology, or first-mover advantage in a new growth sector. Successful firms also need a business model that delivers high returns and strong cash flows that will enable them to fund their growth without constant additional debt or equity capital from investors.
Among the largest holdings that are directly accessible to UK investors are Hong Kong-listed luxury goods company Prada (HK: 1913), which is seeing very rapid growth across Asia and emerging markets. The company already makes around 50% of its sales to Asian customers either in Asia or in its stores worldwide. Over the next few years this is likely to rise substantially leading to strong revenue growth and higher margins. A forward price/earnings (p/e) multiple of 17 times is cheap, given earnings growth of 25% plus over the next few years.
American-listed internet search company Baidu (Nasdaq: BIDU) is the Google of China and we expect it to deliver very strong growth over the next five years as internet penetration in China continues to grow and mobile search takes off with the rapid growth of smart phones. The company has more than 70% market share in China and continues to grow at the expense of its weaker rivals. The overall internet search market remains very small as a percentage of GDP compared to the US, but is growing at more than 50% a year. Baidu has delivered high double-digit earnings growth in recent years and we expect this to continue for at least the next three years.
