Where to for Asia?

The PM Capital Asian Companies Fund and the listed PM Capital Asian Opportunities Fund (PAF), produced notable returns in the past financial year. The Asian Companies Fund returned 23.5%, while PAF’s net tangible asset value per share advanced 23.8%1.

Kevin Bertoli, Portfolio Manager of PM Capital’s Asian strategies, gives his views on how to take advantage of current Asian market conditions.

Broadly, valuations in Asian markets have normalised from the extreme levels witnessed during early 2016. The current price-to-book and price-to-earnings multiples of the MSCI Asia Ex Japan Index are now in line with their long-term averages.

Consequently, increasing valuations will be less of a tailwind for equity markets going forward, and earnings growth therefore becomes a much more important factor in our decision making.

msci asia

Given the strong performance seen over the past year we have taken the opportunity to crystallise some of our successful investments. One area in particular where we have realised several investments has been our long-held ecommerce and classifieds thematic. Given the long-term nature of the structural evolution underpinning these businesses it was always envisioned that these positions would be an integral part of the portfolio for many years to come. However, strong performance and further M&A overtures over the past year have meant we have realised, or will soon realise, several of these investments earlier than originally anticipated.

As investors, we are ultimately looking for periods of heightened uncertainty and increased market pessimism to buy our long-term investment thematic (i.e. 2016), and conversely, we want to sell when the market has become overly euphoric. With several of our ecommerce and classified holdings the latter has definitely become the case.

Whether it be reviewing existing holdings or evaluating potential targets for deploying new capital we continue to focus on the underlying earnings potential of the businesses we own rather than getting fixated on the macro trends which are very hard to predict. While we are confident that Asia remains central to global growth over the next decade, we are cognisant that this is likely to be an uneven ride as growth transitions from fixed asset investment to consumer driven. In this environment, we continue to believe that a targeted approach focusing on specific businesses and industries benefiting from structural growth, or recovering from extreme cyclical corrections, will yield the best results over the long term.

 

 

1. PM Capital is PAF’s Investment Manager. Before tax, after all fees and expenses, adjusted for capital flows associated with the payment of dividends, share issuance as a result of the dividend reinvestment plan, and including the value of franking credits.If capital flows are ignored and one simply adds to the 30 June 2017 NTA the dividends paid, the increase over the 30 June 2016 NTA before tax accruals + franking credits is 22.7%; and the NTA after tax is 16.3%. Past performance is not a reliable indicator of future performance.