China will continue to be a good market for stock-pickers next year, while Southeast Asia looks relatively expensive, according to Asia-focused deep value fund Lumiere Capital.
“China [GDP] is still growing at 7-8%, but the stock market is still at a three-year low, although it’s coming off the bottom by just a bit,” says Wong Yu Liang, fund manager and co-founder of the Singapore-based firm.
The Lumiere Value Fund was up 34% in the year to end-November, against an 11% rise in the MSCI Asia in the same period.
A contributor to the long-only fund’s performance has been Hong Kong-listed APT Satellite, an owner and operator of telecom satellites. Lumiere’s position in the company has increased 224% in the three years since it began accumulating APT stock.
Despite China’s growth, mainland retail companies – particularly in the apparel sector – are still down from historical highs, says Wong. “If we look at a handful of apparel stock, they’re down two-thirds from the top [of the market] in 2011. Eventually, when the market stabilises and consumption starts to increase, consumer names will increase [in value] in China.”
Many industrial companies in Hong Kong are also out of favour, says Wong, and could be a ground for value investing. “The Hang Seng Index is still a ways below its previous highs in the last few years. It’s been very range-bound. Hong Kong and China look undervalued.”
Although emerging markets such as Southeast Asia have suffered this year due to the prospect of a tapering of bond purchases by the US Federal Reserve, Wong believes the stocks are still pricey. “[Prices] have fallen, but when you fall from an overvalued territory, you may get to fair value. They need another big re-rate [before] we’ll start looking at [Southeast Asia]."
Launched in 2007, Lumiere Value Fund has seen its AUM nearly double this year to $70 million, from $40 million in 2012. Two institutional investors – a pension and a fund of funds – made allocations this year. An existing investor has also committed to allocate a further $10 million early next year, which will bring Lumiere’s AUM to $80 million.
Wong is optimistic that by next year, through a combination of performance growth and new investment, the firm’s assets will reach the critical $100 million mark – the minimum fund size that most large institutions will consider for investment.
He also has a favourable outlook on the broad markets. “Next year will probably be the first year [since the crisis] when all the major regions in the world are growing. The US is continuing to grow and Europe is recovering from the bottom. In China, the growth is going to stabilse and Japan is going to grow. It means all the regions in the world are on a good footing [for the first time] since the crisis.”
For deep-value stock pickers, this represents an opportunity to exit securities that have appreciated due to general market optimism.
“The next one to two years will be good for stock-picking strategies,” says Wong. “When you stock-pick you want to pick high-quality value [names] at a very undervalued price and you tend to do well when those get recognised by the market.”