Finding quality and value in 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.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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.