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Matthews Asia bets on small caps

Growing small cap companies in Asia can shore up investors’ returns at a time when the global economy continues to stutter and growth in the two major Asian economies has stalled, according to Matthews Asia’s Lydia So.
Speaking at last week’s International AdviserExpert Investor Forum in Singapore, So said the small cap sector in Asia is under researched and, with active management, has the potential to add significant value.
“Investors globally are searching for growth in a very slow growth environment,” said So. “Large economies such as China and India are going through macro headwinds. QE tapering has also shown ASEAN’s vulnerability. The most exciting way of finding growth opportunities in the region is to look beyond the GDP numbers.”
So explained the Asian story looks compelling mainly due to four structural trends—rising disposable income, corporate productivity growth, deepening of capital markets, and entrepreneurism.
The portfolio manager added that Asian middle class consumption is projected to take “a lion’s-share of global consumption market by 2050” and makes a case that the best way to participate in this growth is by investing in private companies and family businesses that were listed in past decade.
Drilling down into sectors, So highlights consumer discretionary and consumer staples as two which she feels are “very attractive with very good strategic value and pricing power”.
So is the lead manager of the firm’s Luxembourg domiciled Matthews Asia Small Companies Fund. When managing this vehicle, which currently holds between 60 and 70 stocks, So adopts a bottom-up stock selection process – looking to identify stocks “capable of sustainable growth”.
As mentioned, So likes both the consumer discretionary and consumer staples sectors and holds respectively a 15.9% and 20.3% allocation to them within the fund. However, So also has a high allocation to the financials sector, with 16.7% allocation, making it the fund’s second heaviest weight.
The $1m fund currently has a 2.5% underweight to China/Hong Kong listed shares versus its benchmark the MSCI All Country Asia ex Japan Small Cap Index, although this is still the highest country allocation within the fund at 28%.
As an independent, privately owned firm, Matthews is the largest dedicated Asiaonly investment specialist in the United States and manages assets worth $23bn as of August-end.
The investment manager offers seven Luxembourgdomiciled Ucits funds for Asian investors namely; Matthews Asia Dividend Fund, Matthews China Dividend Fund, Matthews Pacific Tiger Fund, Matthews China Fund, Matthews India Fund, Matthews China Small Companies Fund and Matthews Asia Small Companies Fund.

Part of the Mark Allen Group.