Aberdeen makes tentative steps in China

The UK fund manager says it will open offices in China and Taiwan, but is still hesitant about trading in highly priced A-shares.
UK-based Aberdeen Asset Management will open an office in China following approaches made by distributors on the Mainland wanting to sign exclusive deals for investment management.

The firm says discussions are in progress with potential joint venture partners and that agreements are expected to be finalised by the end of this year. Other than that, the firm has given little indication of where it will finally settle and what the scope of its business will be.

Aberdeen says it also plans to open its own office in Taiwan, where the fund manager has been distributing its products through insurance companies and a fund platform services operator since 1999. Its network spans 32 local banks. The office move is designed to increase the brandÆs presence on the island, bring further investor awareness and also allow Aberdeen's fund managers to monitor their investments more closely.

In Asia, the company has registered offices in Hong Kong, Singapore, Japan, Malaysia and Thailand. In Malaysia and Thailand, where 100% ownership of a franchise is rare, the company has managed to operate without the usual JV vehicle. In Malaysia, it is one out of three companies that has done so; and in Thailand, it is the only fund manager with a fully owned structure. Its headquarters for the Asia region is located in Singapore.

Aberdeen says while China's future looks rosy, it is not going there to invest, at least for now. ôChina is facing a very dangerous risk in terms of valuation,ö says Nicholas Yeo, the investment manager for Asian equities at Aberdeen. He says P/E ratios in the Shanghai A-share market traded at 46.5x on average in 2006, while Hong Kong-listed H-shares traded at a P/E ratio of 14.6x. ôThe stock market has come to a very high point. It has become very sensitive to any negativity in the market.ö

Yeo says convergence of the P/E ratios between H-shares and A-shares is not likely to happen so long as foreign investment in the market is restricted, and perhaps for that reason, he notes that investment teams at Aberdeen are not actively looking for investments in Mainland A- and B-shares. ôWe try to get exposed to Chinese growth in Hong Kong. H-shares are cheaper than going straight to China,ö he says.

Yeo is optimistic about the Hong Kong market for the coming five years and notes that a 6%-plus GDP growth for 2007 is realistic. ôHong Kong remains one of the best in terms of growth.ö He reckons the cityÆs H-share market is a ælow-beta playÆ that fully benefits from China expansion, especially in the consumer sector and financial services. At the same time, he notes that Hong Kong's dependence on China exposes it to a high-risk future. Not only does it face global liquidity risks as a result of being an international financial hub, but it is likely to track ChinaÆs peaks and troughs more closely, says Yeo.
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