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A long-term bet on ‘understimulated’ Asia

The 1997 Asian financial crisis has made Asian countries hesitant to stimulate economies, according to Matthews Asia.
Robert Horrocks, Matthews Asia

“We see low inflation across much of the region and high current account surpluses. Both traditional interest rate policy and fiscal stimulus seem available to the region’s governments,” said Robert Horrocks, the firm’s San Francisco-based chief investment officer, at a recent Hong Kong media briefing.

“The governments are not courageous enough and don’t take advantage of the opportunity to stimulate through fiscal and monetary [policies].”

Horrocks believes that the 1997 financial crisis has created an atmosphere of restraint. In Thailand, for example, during the Asian financial crisis in 1997, the country had high single digit inflation and a big current account deficit, but now the country has a fiscal surplus and inflation is close to 0%.

“The governments have been unwilling to move too much in the direction of stimulus, but they have a lot of room to do so.

“While the US has been overstimulated by a decade of quantitative easing and, more recently, tax cuts for the upper classes, Asia remains under-stimulated and is primed for growth,” Horrocks said.

He added that although slow global growth is typically a difficult environment for Asian market returns, both the scale and the duration of its impact on Asia are likely to be less than the past.

China interest?

Horrocks co-manages two Asia dividend funds, the Asia Dividend Fund and the Asia ex-Japan Dividend Fund, both having the largest geographic exposure to mainland China and Hong Kong, according to FE Fundinfo.

Three-year performance of the Asia Dividend Fund is behind the benchmark and sector (chart below).

He believes the short-term investment sentiment toward Asia has soured because global growth has been slowing and the US-China trade issues beyond the phase one deal will be difficult to compromise on.

However, Horrocks sees foreign investor interest in China increasing, particularly after market performance in 2019, which should be beneficial for his funds. The MSCI China Index, for example, was up 23.7% last year.

“After last year’s market performance, we are getting more inquires about how to get access to the Chinese market,” he said.

Investor interest is also driven by the opening of the onshore markets to foreign investors and the inclusion of A-shares in global indices.

Horrock’s funds invest in long-term, income-generating products, not necessarily high growth companies. He warned that there is a sense among many investors in the region that they don’t need to think hard about valuations if a business is growing at 8%-10%.

“Economically, the picture [in Asia] is actually improving, but investors may not benefit from that, as they’ve gotten into this habit of just forgetting about value.”


Matthews Asia Dividend Fund vs benchmark and category average

Source: FE Fundinfo. Three-year cumulative returns in US dollars.

Part of the Mark Allen Group.