Speaking at Last Word Media’s Expert Investor Forum in Singapore last week, the portfolio manager said he has an overweight view on China, India, the Philippines and Indonesia, even as he is underweight on Korea and Taiwan.
He manages the $343m Luxembourg-domiciled Mirae Asset Asia Sector Leader Equity Fund.
The fund seeks to invest in sector-leading companies domiciled in or exercising a large portion of their economic activity in Asia ex-Japan, such as China, Hong Kong, Singapore, India, Malaysia, Indonesia, Thailand, Korea, Taiwan and the Philippines.
China
The fund manager is playing the China story through consumption, travel and tourism, internet, healthcare, and clean energy plays.
“We are also tactically looking at some of the banks. When they reach an 8% dividend yield or [are available at] 0.6 times price-to-earnings, then we can buy some of them.”
He expects China’s economic growth to stabilise close to 5-5.5%, which he believed is a sustainable growth rate and appropriate for an economy of China’s size.
“We believe chances of hard landing in China are extremely low. The reason being fiscal deficit is only 2%. China has a current account surplus, with sound forex reserves, and the debt is owned by locals.”
Bullish on India
The fund manager revised the negative view on India following the strong mandate awarded to the new government led by Prime Minister Narendra Modi.
“India is a market that we are fairly excited about. We believe for equity investors, demographics are very important. But, you also need governance along with demographics,” Chadha said.
“Modi’s growth model is China-like infrastructure, Singapore-like efficient administration, and a Korea or Japan-like manufacturing export model.”
In India, Chadha has an overweight view on information technology and pharmaceutical exporting companies and has also increased exposure to financials and automobiles.
Modi’s “Clean India” campaign, which seeks to clean up the appearance of Indian cities can attract tourists and benefit travel companies, he said noting even a small country like Thailand attracts more tourists than India.
“We are extremely bullish on travel and tourism and more so post Modi’s Clean India campaign. There are couple of listed players like Thomas Cook and Make My Trips that are well managed and stand out.”
Chadha strongly believes foreign direct investment is required in various sectors in India if the country wants annual GDP growth above 7%. In the absence of that, India is likely to hit obstacles such as a high current account deficit and a weak currency.
“Infrastructure is a powerful theme. But given the choice between the two, one would prefer consumer discretionary, consumer staples,” he said, adding he likes automobile companies such as Maruti Suzuki and Tata Motors.
Asean markets
Within the Asean allocation, the portfolio is positioned towards the Philippines, Indonesia, Singapore, Thailand and Malaysia through consumption and financials plays.
He likes the Philippines due to robust economic growth, strong demographics and a current account surplus.
“Unfortunately it is a small market, so you will have limited exposure,” Chadha said.
He likes Universal Robina, which had managed to gain market share from multinationals like Nestle and Kraft Foods.
Even as Indonesia looks appealing over the medium-term, he believed the next six-nine months will be challenging as the new government will have an uphill task in rallying support to pass tough policy measures.
Korea, Taiwan challenges
The manager is underweight Taiwan and Korea due to structural reasons such as ageing populations, poor domestic demand and high indebtedness.
In addition, China’s manufacturers are putting increasing competitive pressure on these countries.
This is particularly true of Chinese industrial companies and shipbuilders in relation to Korea and smartphone and computer component manufacturers in relation to Taiwan, he said.
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One year performance of the Mirae Asset Asia Sector Leader Equity Fund compared with the benchmark MSCI Asia ex-Japan Index:
