Against the tide? No reason to fear Asian stocks

December 10 2014
There are more than just professional reasons why Jan Ehrhardt, portfolio manager of the GAMAX Maxi-Fonds Asien International, views the prospects of the Asian markets in 2015 with optimism.

Investment Prospects for Asia 2015

Against the tide? No reason to fear Asian stocks

China? Buy. Japan? Buy. There are more than just professional reasons why Jan Ehrhardt, portfolio manager of the GAMAX Maxi-Fonds Asien International, views the prospects of the Asian markets in 2015 with optimism. “We are currently seeing many critical reports on the developments of the major national economies in Asia. For a long time there have been discussions about a Chinese property bubble, lower Chinese economic growth and ineffective economic policies coming from the Japanese central bank,” says Erhardt. “Yes, these factors are present, but despite this we consider selective investment in the Asia-Pacific economic region, which continues to be crucial, to be promising for 2015.

Erhardt and the team of analysts at DJE have been focusing intensely on the core markets, such as Japan and China, for years, and supporting selected companies in the region, in ways such as helping their own research or making a personal visit.

Prospects in China: rising wages increase domestic consumption

While the Chinese online group Alibaba saw an exceptional start with their IPO and bond issue, Chinese economic data, such as purchasing managers’ indices, industrial production and a stagnating money supply continue to indicate a slowdown in the economy. The rising wages are also leading to a shift in the production of simple goods away from China to cheaper locations, such as Vietnam. Even though the Chinese property industry caught up again in October, the problem of the oversupply of housing, especially in rural regions, remains unresolved. Stocks that are sensitive to movements in the construction industry, but also raw materials and energy stocks, will therefore not be attractive target investments in the coming months.

“Weaker economic data does not necessarily mean a weaker stock market performance,” says Ehrhardt, remaining confident. “Indeed, the Chinese central bank is now lowering interest rates. We just have to become more selective in China.” Defensive stocks with stable earnings and attractive dividends, such as toll road operators, logistics, telecommunications and selected consumer stocks are especially promising – these in particular could benefit from growing household income in the longer term. China also continues to have many privately held companies that are barely affected by the high level of debt of state corporations, if at all. These could benefit from an improvement in credit conditions over the next year and see above-average performance.

Ehrhardt recently took profits from investment in Sino Biopharmaceutical, one of the top ten stocks in the GAMAX fund to date, which has seen a five-fold increase in its price since purchase. On the other hand, the stake held in two IT companies has been increased: Travelsky, a development platform for the travel industry, and Tencent, a rapidly growing internet company. Overall, he continues to consider the Chinese stock market to be an attractive investment for 2015, with a price-earnings ratio of around 11%.

And now Japan: social change is driving consumer stocks

The Japanese economy does not seem to be improving as it should, despite Japanese Prime Minister Shinzo Abe’s economic programme and the expansive policy of the Japanese central bank. Nevertheless, Ehrhardt still sees opportunities here in selected sectors and individual stocks: “Corporate profits have risen faster here in recent times, despite the weaker economy. Export-driven industries in particular are benefiting from a depreciating yen. This trend could continue in 2015.” Ehrhardt also expects a possible extension of share buybacks from Japanese companies.

Consumer goods aimed at female consumers could also prove interesting. The low birth rates and imminent ageing of society is changing the employment structure in a historically very conservative country. Today, more and more women are employed and economically independent. Other winners in 2015 could come from the chemicals, industrial and property sectors.

Ehrhardt recently expanded the stake of GAMAX Maxi-Fonds Asien International in Asahi Kasei, a favourably valued Japanese conglomerate, and Softbank, a large Japanese telecommunications company, which looks especially attractive from a valuation standpoint. By contrast, shares held in automotive suppliers Denso Corporation and Takata were reduced. Overall, Ehrhardt continues to consider the Japanese market attractive, both in absolute and relative terms. The confidence in the Japanese stock market is justified, as seen by the example of the Japanese pension fund, the largest in the world: this pension fund now wishes to increase its weighting in both Japanese and foreign stock, more than doubling it, from its current 12 to 25 per cent.

GAMAX Maxi-Fonds Asien International

GAMAX Maxi-Fonds Asien International (ISIN: LU0039296719) invests widely in countries in the Asia-Pacific region, including Japan and Australia. The portfolio management strategy, which has been headed by DJE in Pullach near Munich since October 2007, combines a fundamental selection of individual stock with a top-down analysis of key macroeconomic factors. This fund seeks steady performance with reduced risk. The fund consciously departs from its benchmark; consumer stock and stock listed in Hong Kong are currently heavily weighted. The fund has achieved a performance of 11.4 per cent in the past twelve months (as of 28 November 2014). The fund has been able to beat its benchmark by 10 per cent since the change of management in October 2007 (as of 28 November 2014).

About GAMAX Management AG

GAMAX Management AG, a fund management boutique based in Luxembourg, was founded in 1992 and acquired by the Mediolanum Banking Group, an Italian financial services group, in 2001. GAMAX currently runs three funds with a total value of 405 million Euro (as of October 31 2014). The boutique offers two actively-managed equity funds with specific investments in strong brands and in the Asia-Pacific region through its funds ‘GAMAX Junior’ and ‘GAMAX Maxi Fonds Asien’. Fund manager, DJE Kapital AG, targets long-term outperformance of benchmark indices for both GAMAX funds.