China has a strong influence on Asian markets, and now, as was made clear during the market volatility this summer, global markets.
After a run up and steep drop in mainland markets, driven by retail investors, China’s central bank carried out a surprise devaluation in August by changing its daily fixing mechanism, leading to a 3% devaluation of the RMB against the US dollar.
The volatility sparked by these events has since subsided. But there is more to come as China opens its financial markets and A-shares are included on world indices. As China continues with reforms and the transition to a domestic consumption-led economy, volatility will continue. Yet the hard landing scenario seems to be specific to observers based in developed markets, and China bears have been wrong for nearly a decade.
Within that context, Fund Selector Asia compares two funds investing in Asia, the Schroder International Selection Fund – Asia Opportunities against the Value Partners High- Dividend Stocks Fund.
Germaine Share, research analyst at Morningstar, has provided a comparative analysis.
Investment strategy review
Both funds invest in Asia ex-Japan equities, but their investment strategies are quite different.
The Schroders fund, led by Robin Parbrook, relies on a bottom-up investment process and is focused on quality growth. He uses the MSCI AC Asia ex-Japan index as a benchmark for the fund.
Parbrook’s investment philosophy is to take a long-term approach, Share said, adding that he values management quality, corporate governance and the interests of minority shareholders.
She noted that the philosophy is reflected in the fund’s portfolio, which has an underweight position in South Korea, where family-run conglomerates dominate the economy and companies tend to have low dividend yields.
In his stock selection process, Parbrook applies quantitative and qualitative screens, such as liquidity and corporate transparency, together with company visits to identify approximately 560 stocks that fit his criteria.