Consumption patterns leading to quality plays in Asia, says Joohee An at Mirae Asset GI
Mirae Asset Global Investments’ Joohee An explains the opportunities seen in Asian consumer behaviour.
Asia is a significant region both in terms of its geographic spread and the size of its population.
This population is becoming increasingly consumerist in its behaviour, and it is here that Joohee An, senior portfolio manager at Mirae Asset Global Investments based in Hong Kong (pictured), and responsible for the Mirae Asset Asia Great Consumer fund, is looking for investment opportunities.
There are certainly some top down trends that are being felt, An says.
One is in the area of liquidity. The past year has seen a liquidity rotation from South to North Asia, An suggests. This change is being linked to key macroeconomic issues. In China there has been significant focus on the outcome of the so-called Third Plenum of the Chinese Communist Party, and its reform objectives.
In South Asia by contrast, currency, inflation, and other macro issues are at the fore. Then there is an ongoing link to the question of tapering of quantitative easing by the US Federal Reserve.
Still, what really matter for Mirae and An are valuations and earnings per share (EPS) growth rates, and what drives these and other factors. For example, as Asian consumers focus on the amount of money in their bank accounts, it becomes important to look for stocks that benefit from rising wage levels.
Similarly, if a high quality stock with growing earnings has been identified, then as an investor An says investors need to see volatility as an opportunity to buy.
Hers is a thematic fund, which means ignoring the sector allocation that may arise from following individual stocks. This is a benchmark agnostic fund, but does rely on the MSCI Asia ex Japan. An is wary of relying on indices that end up weighted towards certain big consumer related stocks. This is a reason for the fund being launched in the first place; she suggests investors seeking exposure to the Asian consumer story may find it difficult, for example, to find a suitable index fund or exchange traded product.
Running a concentrated portfolio that launched with some 30 stocks partly reflects the higher level of competition ongoing than in developed markets; lower quality stocks risk disappearing over a period of a few years, she says. In emerging markets of the type found in Asia, there are both domestic companies competing against each other as well as global brands – such as Apple in the technology space.
The resulting focus becomes high quality names to buy and hold on the basis of strong conviction, with a consequential low turnover, she says. An points to the example of Samsung: 20 years ago nobody would have thought its current position possible against the likes of Sony.
Benchmarked valuations may have seemed high in the last month or so of 2013, An says. This is one reason she prefers the PEG ratio to PE. The point is that value may be defined differently than as applied in a traditional sense to developed market equities. An is looking for long term and good company management, that is able to surprise on the upside, hence the search for particular PEG ratios.
Governance is an important factor to consider regarding the search for companies, An adds. This is a portfolio exposed to emerging markets, and many companies remain family owned, and therefore a need to research these families and their long term management capabilities. In certain countries the governance issue leads An to consider non-family dominated business, such as Indonesia, where there is limited exposure to construction companies as a result.
The consumer theme also requires consideration of discrete, domestic markets as there may be considerable differences between them. For example, many of the biggest websites accessed in India are foreign, whereas in China the top sites involve local brands and companies. Language plays a part in these differences. Therefore, the internet opportunities are seen in China rather than India.
Property is another area of differences: it is a relatively small part of GDP in Indonesia. However, the country’s population is large, and when people have the money there is demand for housing.
|North Asia investment themes||Tourism, gaming, internet, luxury spending, local tastes|
|South Asia investment themes||Healthcare, property, telecoms, brand retailers, local tastes|
|Source: Mirae Asset Global Investments|
Not all consumer themes are best played via domestic brands, An adds.
Gambling and tourism can be, for example, through Macau gaming companies and Korean duty free retailers respectively. The luxury goods sector may be played via a non-Asian brand, such as Italy’s Prada.
What is important in each case is brand ownership. The strategy is investing on the basis of consumer trends, and for Asian consumers brand is important, and for the businesses concerned it offers pricing power. In certain cases, consumers simply do not trust domestic brands; An sees opportunity in Korean snacks that can sell to Chinese consumers wary of food health scares.