Value Partners Asset Management Singapore Pte Ltd managing director Chuck Ng and deputy CEO Lai Voon San still see pockets of growth in China despite the recent stock market volatility and poor investor sentiment.

What is your outlook for the rest of Asia this year?

Lai: For the rest of the region, we are still slightly biased towards North Asia from two perspectives. One is that they are attractively valued — Korea is still very cheap. The market, using a simple metric like PER, is the cheapest in the region. No dispute there.

Even Taiwan, there are quite a lot of opportunities as it is not very expensive. We are also encouraged by the changes in the domestic economy. Exports have been strong, further aided by a weakening Taiwan dollar. Much of it is tech-related, but overall, we have seen a steady growth in exports. So, from a valuation basis, these are the markets that can get a better re-rating. So, that’s where we are putting a lot of emphasis on.

In terms of Asean, it is a bit trickier. Each market is facing its own growth challenges. This can include economic, political, currency or other domestic factors. For example, Indonesia has been hurt by a delay in infrastructure spending. The economy has been weak following the election as there have been delays in spending by the new government. It has taken a long time to implement and execute some of its initiatives. The currency has also continued to weaken and the current account deficit is a worry. All this has caused the market to be the worst performing in the region [and even more pronounced in US dollar terms]. Malaysia has been hit by lower oil prices and the implementation of the Goods and Services Tax. But the underlying theme is that there has been some sort of slowdown in Malaysia and Indonesia.

I think currency risk for markets is going to be a concern. In Thailand, there is a whole idea that politics will have a big influence, whether the election that has happened or one that is happening. In the Philippines as well, there will an election in the next six to nine months. So, there could be a lot of underlying political issues that will help drive the markets.

Singapore was disappointing in the first quarter, so it needs to continue introducing new measures to stimulate the economy. With SG50 (Singapore’s 50th Independence Day) and a possible election in the second half [of this year], we are looking out for further government incentives and policies.

What type of companies have you been investing in Asia?

Lai: There have been many kinds of companies listed on the Hong Kong Exchange. For example, H-Shares and Red Chips, which are Chinese companies listed in Hong Kong. We invested in a lot of these. So [we prefer] companies with a ‘slant’ — those which have more of their business or operations in China rather than Hong Kong. We have holdings in some of these companies.

We have investments in Asean, such as Malaysia, Indonesia and Singapore. We have also invested quite a lot in Thai companies. In the portfolio we offer with Affin Hwang, Asean accounts for about 13% [of the fund’s portfolio].

We also know that the consumption habits of the Chinese have changed, and they are no longer buying purely high-end luxury goods. They are buying less flashy stuff. One thing they like to buy now is cosmetics — Korean cosmetics specifically. One thing that is changing is the massive growth in Korean cosmetics because the Chinese customers have been buying aggressively. Duty-free sales have more than doubled in the past year. You also see consumers embracing other Korean consumer goods. For example, Samsung has clearly become one of the leading players in the electronic/tech world.

In Taiwan, exports continue to do really well. Some of it is Apple-related. Taiwan is a key manufacturer of many of the components found in most Apple products. iPhones are put together in China by a Taiwan company, Hon Hai. But the depreciation of the Taiwan dollar actually makes them even more competitive in the tax game [a cheaper currency makes exports even cheaper to a foreigner importing it in the local currency].

Each market has its own specific happenings. Korea is suffering because of the Middle East Respiratory Syndrome (MERS). Some shares have been sold because of this, and this can sometimes provide an opportunity. This is something we learnt during the Severe Acute Respiratory Syndrome (SARS) outbreak more than a decade ago.

Some investment experts have warned of a financial crisis by year end, due to the unsustainable debt levels in the global system and unresolved issues from the previous global financial crisis. They recommend that investors hold on to their cash in anticipation of cheap buys post-crisis (if and when it happens). What is your take on this?

Lai: We don’t share that view and we definitely don’t think the markets will blow up. [These experts are] correct in the sense that from time to time, there have been periods of volatility, so the best position would be to go in and buy. I think there will be buying opportunities in every market.

But we certainly don’t see anything right now that will precipitate a global financial crisis or economic crisis. Some parts of Europe are a bit worrying, like wondering whether Greece [leaving the European Union] will destabilise the euro. But I don’t think there is one big factor that can change or affect the market [unless] it is sort of an out of the world scenario — a nuclear bomb going off somewhere or a big war in which every [country is involved]. Short of anything like that, I don't see any sort of financial disaster happening. As a result, I don’t think it is necessarily positive, as equity investors are always taught that buying is the easy part and selling is the difficult thing. So if you decide not to buy now, it is perfectly fine. But like China — everyone missed the 70% to 80% rally. So now, everyone is trying to figure out when it will come down. But when it comes down to 50%, it is likely that they won’t buy, because that is usually the mindset.

If you miss out on the opportunity to add to positions and put it all in cash, you may actually miss the rally and I don't know when the next rally will be. From our perception right now, we are only at the start of a rally in China as we are starting to see empirical evidence and hear that things are going to be positive.

Affin Hwang Dividend Value Fund

Affin Hwang Asset Management Bhd launched the Affin Hwang Dividend Value Fund (DVF) in May, to capitalise on Asia-Pacific’s high-yielding stocks. The wholesale fund feeds into the Value Partners High-Dividend Stocks fund, which aims to achieve capital appreciation over the medium to long term by investing in the latter’s collective investment scheme.

The target fund, which is a Cayman Islands-domiciled fund of Value Partners Ltd, invests primarily in higher-yielding equities and debt securities while maintaining a flexible allocation to other assets in Asia-Pacific, focusing on Greater China.

Some 30% of the target fund is invested in the banking, real estate and utility sectors as well as in consumer goods, among others.

The minimum investment amount is RM30,000.

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on July 20 - 26, 2015.

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