Finding quality and value in emerging Asia
Each week, a professional investor tells Moneyweek where he’d put his money. This week: Nitin Bajaj of Fidelity Asian Values investment trust selects three favourites from emerging Asia.
Each week, a professional investor tells us where he'd put his money. This week: Nitin Bajaj of Fidelity Asian Values investment trust selects three favourites.
I have a very simple investment philosophy: buy good businesses run by competent and honest people, and buy them at a valuation that leaves enough of a margin of safety for mistakes or bad luck. This process tends to lead me away from big stocks. I try to buy companies that other people neglect. That's where I find bargains and hence the required margin of safety. I also seek out firms that are so well established in their markets that it would be hard for potential rivals to develop a presence.
As a result, Fidelity Asian Values has the majority of its capital deployed in very small companies in emerging Asia (between £100m and £1bn market cap). Mega-cap stocks, which comprise roughly 75% of the regional index, only make up about 20% of the trust's holdings.
The investment-trust structure means I am less concerned about small caps' liquidity than a unit trust managerwould be. I am not required to meet daily flows into or out of the trust.
Beating the crowd to a bargain
BOC Aviation (Singapore: BOCA)
I started buying the stock when it was on a price-to-book ratio of one, a price-to-earnings ratio of six and offering a 7% dividend yield. The business has a major competitive advantage: because it is owned by a bank, it can borrow money at very low rates. As luck would have it, other people started noticing it soon after I bought in, so the trust made a reasonable return on its investment.
A tasty food group
Fufeng Group (Hong Kong: 0546)
Despite these positive attributes, the stock is cheap for a global leader. It has been misunderstood by investors, who have missed the consolidation taking place in the market: the company should see better pricing power and margins throughout the next cycle.
Indian mortgages on the cheap
LIC Housing Finance (Mumbai: LICHF)
Its assets (mortgages) react to interest rates faster than the company's liabilities, so throughout the falling-rate environment over recent years, the company saw its net interest margins shrink, putting many potential investors off. With rates now beginning to rise, this trend will reverse, so I have been able to buy a long-term growth business for a mere ten times earnings.