Financials and property are where Asian growth will come from this year says Mike Kerley, manager of the £226m Henderson Far East Income trust. However, India and China barely feature in his portfolio.
For more than a year Kerley has had no exposure to India and his weighting in China is only 3%. Instead his faith in banks, property and the consumer lies in countries with lower valuations.
“We do like India,” says Kerley. “We just can’t justify the valuations. [Indian stocks] are getting cheaper now. But I am a value manager. I need value [and] it hasn’t appeared yet.”
Kerley has been cautiously positioned in China for almost a year and his current exposure is all in one stock, PetroChina.
But although Kerley says being cautious on China was the right decision he says his timing could have been better.
“We were not highly exposed to China when it bounced and it didn’t help us,” he says. “[But] from the end of October to now we’ve seen a big sell-off. Being cautious was right, but maybe the timing was wrong.”
Kerley is underweight cyclical and export-related stocks, materials and energy and has reduced his weighting in technology. Instead he is positive on banks, property, domestic industrials, mainly infrastructure and construction-related stocks, and telecommunications.
The largest country weightings in the portfolio, as at December 31, were Australia and South Korea, with exposures of 20.3% and 20% respectively. Hong Kong has the third largest weighting, with banks being the focus. In addition,Thailand was added to the portfolio for the first time earlier this month with Kerley investing in Krung Thai bank.
“There is continued consumption growth in Asia,” says Kerley. “Demand for loans will boom this year. Property and financials should do quite well. ” At December 31, the portfolio had a 38.5% weighting in financials, including property.
Kerley points out that the sizeable current account and fiscal surpluses across Asia will lead to increased government spending on education, healthcare and infrastructure, such as building more hospitals. He says banks and construction companies will be the beneficiaries of this trend.
“Any increased spending will help the banks,” says Kerley. “Infrastructure is labour-intensive. The knock-on effect will be beneficial for the economy.”