Asean developments drawing investor attention
Mark Monson is part of the team at Raiffeisen Capital Management that oversees the manager’s Eurasia Equities portfolio, and presents a particular way of looking at emerging and global markets.
In terms of geography, the fund follows a particular investment universe comprising India and China (25% each), Russia (20%) and Turkey (5%) and Asean (25%).
Among this universe, there is obviously near term concern over Russia. What matters for investors now, Monson (pictured) suggests, is the data yet to be published for recent months over the winter.
“There are indications that consumption is slowing, so further weakness is realistic,” he says.
“What’s happening in Ukraine is a dent in terms of visibility and what Russia can do.”
However, Raiffeisen maintains exposure to Russia, including via other funds offered besides the Eurasia portfolio. And the longer term story remains solid, Monson argues.
Investors know that the market is cheap, and in terms of multiples such as price/earnings that is nothing new. However, there remain strong stories at the micro level, especially where there are companies that have a cash value in excess of their market capitalisation value.
“I think it is too early to tell what the short term, 1-2 years, will mean. But, long term the restructuring and reforms mean eventually the economy is growing the domestic side well. It may not be very present in the stock market, but its strong potential could lead over the next decade to making it less dependent on oil and gas.”
And for those who feel that Russia is not able to offer any risk adjusted reward, Monson notes that 1% of the alpha created in the fund last year was made in Russia.
Crucially, however, it is the final third and fourth quarter 2014 data, along with more first quarter data this year that will tell investors more of the story.
“But consider also that Russia can substitute a lot of imports. Then the question becomes how fast they do that if sanctions are prolonged.”
Asia and Asean
Another key area followed by Monson himself in particular as part of the Eurasia fund team is the countries that make up the Association of Southeast Asian Nations (Asean) along with the two giants that are India and China.
In regards to China the key is to adopt a bottom up strategy. Monson says that spotting and following individual companies can assists minimise risks such as accounting fraud, but also increasingly identify companies that have gone through a full market cycle and survived, with management improving along the way. This was not necessarily the case before the global financial crisis, Monson says.
“So, Raiffeisen is not necessarily bullish on stock markets, but we are seeing companies that know what to do.”
“We can find companies that are well managed, for example Alibaba and Tencent. You can see the evidence on the stock market where shares have skyrocketed, although overall an increasingly selective approach is required.”
Meanwhile, Monson describes what he sees occurring in Southeast Asia as “quite amazing”.
The misconception among foreign investors has been that the region was “coasting” through much of the 2000s off a wave of soft commodities. However, the performance of countries in this region was determined by the memories of the 1997 financial crisis. This resulted in far reaching and lasting reforms, more central bank independence, free floating currencies, and other factors, which along with lower debt and foreign currency dependency have led to sustainable growth.
“If you talk to bankers and corporates locally they are much more cautious. For example, the required reserves for banks in the Philippines is 20%. It is overly cautious banking and it means that, for example, the central bank in that country has been out urging people not to overextend themselves amidst a property boom.”
“When the global financial crisis hit, these countries were not overextended in CDOs and so on. That’s why they still had 4.5% growth in Indonesia in 2008.”
Effectively, if central bankers in the region were to err, it would be on the side of caution, Monson says.
Also interesting is that the Southeast Asian economies are growing fast but remain less correlated to China, Europe and the US. Some 76% of the Philippines is domestically driven, Monson says, which lends it a high level of resilience.
The region overall contains some 500 million people and a rising middle class. Meanwhile the existence of Asean as an organisation means that economic integration within the region is continuing, which looks set to improve capital flows in the region.
Mark Monson took part in the recent Pan-Nordic Fund Selector Summit. Click here to see highlights of the event: http://www.investmenteurope.net/events/pan-nordic-summit-day-1-pictures/