Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Andrew Graham, fund manager, Martin Currie Pacific Trust.
At the halfway point in another volatile year for global equities, it is difficult to predict how markets will move in the remainder of 2013. So investors should try to identify companies that will outperform in a variety of market conditions. Asia is a good place to start looking since its stock markets tend not to blindly follow those in the US or Europe.
So what are we looking for? First, we want attractive business franchises with favourable prospects. Sound financial health is also key, as are competent managers who behave like owners. We like companies that return excess funds to shareholders, either through dividends or share buybacks. Above all, we want the market to undervalue these qualities so that such shares are available at a discount to our estimate of their intrinsic worth.
One of the big investing themes we follow is the growing wealth of the Asian consumer. In particular, increasing personal wealth is generating greater demand for financial services such that Asia is becoming a global financial hub. This is reflected in our portfolio through stocks such as AIA (Hong Kong: 1299).
The life-insurance group’s experienced management team is reinvigorating this business. Motivation is high, as more than 50% of senior management’s variable compensation is dependent on generating new business. The balance-sheet carries low levels of debt, and the company maintains a policy of steady annual dividend increases. A recent meeting with the chief financial officer reconfirmed our view that AIA will maintain a conservative capital structure while it pursues the substantial business opportunities available to it.
Another theme we like is increasing intra-regional trade. Warehouse operator Global Logistic Properties (Singapore: GLP) is a good example of it in action. The company provides modern logistics facilities in Japan and China, and last year announced its entry into Brazil through the acquisition of a portfolio of assets. We spoke to management following the Brazil announcement. Although we were initially apprehensive that the company was venturing outside of its familiar territory, we came away feeling more comfortable about the economics of the investment and the firm’s continuing focus on Asia.
Meanwhile in Japan, the better car makers have positioned themselves to take advantage of future growth opportunities. Toyota Motor (Tokyo: 7203) has maintained the power of its brand through continuous improvements in areas such as reliability and fuel efficiency (think of its efforts in hybrid cars) and through the progressive globalisation of its business. Having implemented severe cost-cutting measures during several years of pressure from a stronger yen, the firm is enjoying a rapid recovery in profits thanks to rising global demand for cars, particularly in the US.
The recent weakening in the yen provides a further tailwind. Over time, we believe that Toyota’s returns will increase through a combination of top-line growth, margin improvement and cost reductions.
In summary, I believe undervalued, high-quality businesses with resilient earnings and healthy cash flow are always good bets, especially now.The abundance of these in the Asia-Pacific region gives investors plenty of reasons to remain upbeat.