Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Matthew Dobbs, Fund Manager, Schroder Asian Alpha Plus.
There are many challenges facing the global economy. These include wide trade and capital imbalances between the East and the West, high levels of public and private debt in the developed world, and artificially depressed interest rates. Perhaps more fundamentally, there's the question of whether good old Mother Earth can support the growth expectations of the human race in terms of food, fuel and basic resources.
Continued volatility will be inevitable given the current environment, but I would continue to advocate equities as the core of any long-term portfolio, partly because the other mainstream alternatives (cash, government bonds, better-quality corporate debt) don't look that compelling.
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Within equities, my focus would be on economies of the future, not the past. That means Asia, excluding Japan. While many emerging markets, such as Latin America, Africa and Russia, are performing well, much of this is reliant on high prices for key commodities. Those in turn are highly dependent on the economic prosperity of Asia.
Among stocks we favour currently, Jardine Strategic Holdings (SI: JS) remains firmly on the list. The group remains astonishingly low profile, given its size (a market capitalisation of over $30bn). Those with long memories may recall a group that seemed to turn its back on China and embarked on a number of unrelated and value-destructive acquisitions. Over the last decade, there has been a sea-change; a disciplined bottom-line-focused management has looked to optimise the returns from an impressively strong asset base. This includes HK Land, the premier landlord in the prime business district, Dairy Farm (food and drug retailing throughout the region), and the Astra Group of companies in Indonesia, encompassing car and motorcycle manufacture and distribution, finance, coal mining and palm oil.
We also like Samsung Electronics (LI: SMSN) . The typical momentum-led investor is obsessed by the lack of earnings growth in the current year after a bumper 2010. Samsung's memory semiconductor business is cyclical, but it remains streets ahead of the competition in terms of technology migration (and therefore significantly more profitable through the cycle). Meanwhile, it is building up a formidable technology platform in AMOLED (the next generation of flatscreen televisions and monitors), system LSI semiconductors and tablets. At under eight times next year's earnings and 1.4 times book value (while growing 15% a year), it looks much too cheap to us.
The rise of the Asian consumer is clearly a major investment theme, but one that is well recognised by investors. High valuations are a trap for the unwary, but using our strong local resources we continue to seek out less well-known, and therefore more attractively valued, opportunities.
These include companies involved in car distribution, media, regional department stores and luxury goods. One example would be Texwinca (HK: 321) in Hong Kong. It is successfully focusing its business model on retailing in China, but is still valued as a cyclical industrial at 11 times earnings, while offering almost a 6% yield.
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