Hugh Young, the managing director of Aberdeen Asset Management Asia and head of equities at Aberdeen as a whole, has labelled China as “exceptionally disappointing”, with “some spectacular blow-ups” on a company level.
Despite staggering economic growth, Young says he and his team have learnt some “harsh lessons” in China.
Aberdeen manages over £25.4 billion in Asia Pacific equities on behalf of clients around the world.
Its offering includes the £2.5 billion Aberdeen Asia Pacific and the £249m Aberdeen Asia Pacific and Japan fund. In addition, the group also runs a dedicated China strategy, the £553.4m Aberdeen Global Chinese Equity fund.
Young says an economic growth rate of 10% is no guarantee the stockmarket performance will follow suit.
“It’s important to know what is going on in the economy but it is absolutely vital to know the stocks,” he says. “China is a very exciting story if you are wearing your sales head, but it is difficult to make money.” (article continues below)
China, whose economy was one of the fastest growing ones in Asia, actually had one of the worst stockmarket performances throughout 2010. Sri Lanka, Thailand and Malaysia, on the other hand, stood out in terms of performance.
Within Aberdeen’s relative country positions, China is the second largest underweight, with a 12.4% divergence in relation to the MSCI All Countries Asia Pacific ex Japan index. Singapore and Hong Kong are, with 14.7% and 11.2% respectively, the largest overweights.
Young and his team have struggled to identify stocks in mainland China that meet their criteria. “We found it difficult in China to find companies that are run for our benefit, for shareholder benefits,” he says.
Instead, they get exposure to China via companies listed in Hong Kong and Singapore.
After all, Young says, the growth seen in Asia last year has to be put in context as the year before was “awful” and a fair share of the growth was recovery.
“There are a lot of things to worry about, mainly the combination of inflation and [rising] interest rates,” he says. “Consumer stocks in the region are also too pricey. A lot of investors were jumping on the bandwagon.”