Each week, a professional investor tells us where he'd put his money. This week:Brook Tellwright, Waverton Southeast Asian Fund.
There is a widely held perception that emerging markets are both too esoteric and too far out along the risk spectrum for most mainstream investors. In mid-sized Asian countries such as Indonesia, Vietnam and the Philippines, high levels of political risk, combined with poor corporate governance, cause many to view the region with apprehension. At best, these markets are seen as a warrant on global growth that should only be held during moments of extreme optimism and even then via the perceived safety of an index tracker.
We have a different approach. We see the region as one where demographic trends tilt the playing field in investors' favour over the longer term. Large, young and growing populations, combined with a rapidly emerging middle class, are creating investment opportunities in sectors such as consumption, infrastructure and financial services. The story is no longer about exports; it's about rising consumption here in Asia. Less than 10% of Indonesian households currently own a car and less than a third of Vietnamese households have a bank account; but all this is changing rapidly.
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We exploit this through a portfolio of just 25 companies. Our team of three investment professionals is based in Bangkok, where they focus on identifying companies that are truly managed forthe benefit of minority shareholders. These are surprisingly rare in a region where majority state-owned enterprises, often run for political objectives, dominate the markets and indices.
A good example of a company we like is Singapore-listed Jardine Cycle & Carriage (Singapore: JCNC), which owns a majority stake in one of Indonesia's largest conglomerates, Astra International, the sole distributor of Toyota cars around the country. The dominant brand with over 35% market share, Toyota is well placed to gain from rising Indonesian car sales due to its extensive distribution network and economies of scale.
Vietnam is the southeast Asian country where we are currently finding the most interesting investment opportunities. Unfortunately, it is a difficult market for retail investors to access directly, due to restrictions on foreign ownership, but Vietnam Enterprise Investments (LSE: VEIL), a London-listed investment company, offers a way around these restrictions and has a long and well-tested record in the country.
Manila Water (Philippines: MWC) has a monopoly on water supply in Manila's East Zone (population six million) until 2037. The company's regulated core business should provide stable returns and dividends for investors, but the exciting aspect of this under-appreciated story is that the company is now taking its expertise to win new business both in the Philippines and in other countries in southeast Asia where water infrastructure is severely stretched.
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