Tag Archives: emerging markets

Points of View: Schroder Asia Pacific

This week I am looking at Schroder Asia Pacific, an investment trust which invests in equities listed in the Asia Pacific region excluding Japan. The fund has been managed by Matthew Dobbs since inception in 1995 and has become the largest trust in the sector.

Performance of the fund has been very strong over the last 3 years, 51% vs 29% for the MSCI Asia ex Japan benchmark, which has been driven by large weightings to Chinese and technology based stocks.

Chinese equities make up around half of the portfolio (this is c3.7% overweight compared to the benchmark) and this has been steadily increasing over the last couple of years. Mr Dobbs gains exposure to these stocks through the Chinese and Hong Kong stock exchanges, traditionally preferring the Hong Kong listed companies due to tougher listing requirements and better corporate governance. Mr Dobbs feels that this weighting is justified due to favourable economic conditions and a shift towards services and the consumer.

Technology is the largest sector weighting in this fund at 34%. Over the last 18 months the technology sector has seen strong performance and those listed in Asia have been no different. Despite the strong rise in the share price of companies like Alibaba and Tencent (the Chinese equivalent of Amazon and Facebook respectively), Mr Dobbs feels that these companies will continue to be the key beneficiaries of the technological disruption going on in the region. Tencent already has around 320m users who spend more than 4 hours a day on the platform.

Arguably, the large weightings to China and technology increase the risk of the fund. However, over the 23 years since inception, Mr Dobbs and his team have established a great track-record of identifying drivers of growth for the fund to benefit from.



Emerging markets – Is the return to favour sustainable?

For the last several years the emerging markets story has been one of frustration and disappointment, with the sector under-performing its counterparts in the developed world by a wide margin. In January all of that changed and the sector has been one of the best performers so far this year. To put some numbers on this, the broad EMG sector has delivered a total return of around 8%, against which the developed markets have struggled to produce returns of 2-4%.

The main driving force behind this has been the sharp upward spike in oil and commodities prices. No surprise there but it is interesting to note the very high degree of correlation – around 92% – that has prevailed. Much of the fortunes of the emerging markets are also tied up in currency movements, with the strength or weakness of their currencies relative to the US$ having a huge influence on their ability to make progress. A third influence, but one that varies from country to country, is the political climate. This is underlined by the turmoil presently occurring in Brazil which is attracting nervous sellers and opportunistic buyers in equal measure

It remains to be seen whether the rally will continue and the dramatic upturn in emerging markets suggests that investors may be taking much on trust. For markets to progress from here it will take continuing currency strength, lower inflation and a sustained improvement in company earnings.

For more information, contact Alastair MacDougall on 01223 720255 or visit http://www.nwbrown.co.uk/investment-management/