Paul Chan is Asia ex-Japan chief investment officer at Invesco in Hong Kong. He took the post in July 2007, having joined in November 2001 as an investment director and head of Hong Kong pensions.
With 19 years of experience covering the Hong Kong and China markets, he has also served as deputy regional director at AIGIC Asia and investment consulting practice leader at William M Mercer in Singapore. Other roles have included stints at Morgan Stanley Asset Management in Singapore and Merrill Lynch Asset Management in Hong Kong.
AsianInvestor: In which asset class, sector or country (or combination of these) did you have your greatest investment success in 2009?
Paul Chan: For the year to November, our exposure and stock selection in China domestic A-shares* added value to our regional Asia ex-Japan portfolio (ie the Invesco Asia Opportunities Equity Fund). For 2009, measures introduced by the Chinese government to stimulate domestic demand have been swift and aggressive, including benchmark lending-rate cuts, unprecedented strong credit expansion Rmb8.9 trillion ($1.3 trillion) of new loans from January to October), tax rebates and industry-specific policies to stimulate property, home appliances and auto sales.
Growth stabilised in Q2 and accelerated to 8.9% in Q3 on the back of a strong pick-up in industrial production and government-led fixed-asset investments. The magnitude and speed of the recovery have been stronger than expected.
For China, we focused on our stock-selection strategy, with the aim of identifying the companies we believe can best exploit China's solid economic recovery. We also favour stocks with good earnings visibility, strong growth prospects and those that are likely to be least affected by potential economic policy changes. Examples include stocks relating to consumer-related goods and services (such as personal goods, food and beverages, internet gaming) and infrastructure-related sectors that can benefit from the stimulus package (such as capital goods, and materials such as steel and power equipment).
Which asset class, sector or country (or combination of these) was the least successful for you in 2009?
Asian equities have recorded a blistering run since March, supported by the pick-up in economic recovery, as well as positive earnings revisions. For our regional Asia ex-Japan portfolio, stock selection in Korea detracted value year-to-date. Within Korea, exposures to IT and financials were the least successful. The IT and financial sectors rallied by 89% and 70% year-to-November as investors anticipated a cyclical recovery. Our cautiousness and defensive positioning at the beginning of the year affected performance.
Which asset classes or sectors are most likely to have the most potential in 2010, and why?
Most Asian countries enjoy current-account surpluses and high savings rates, while banking systems remain robust. As such, Asian economies are recovering relatively quickly, as proactive fiscal and monetary stimulus measures gain traction. The resilience of intra-regional trade on the back of the shift of Asian exports from the US and Europe to China is also cushioning the fall in exports.
Against this backdrop, looking ahead in 2010, we continue to look for domestic-related sectors that can benefit from Asia's economic recovery. In particular, we prefer industrial companies that can maintain decent growth by shifting their focus from exports to domestic demand. We also favour growth sectors with low penetration rates and strong secular growth -- such as internet-related sectors, personal goods, tourism and healthcare. These domestic-demand industries are still in the infancy stage of development, compared to their Western counterparts.
Which asset classes or sectors are likely to offer the least investment potential in 2010, and why?
We continue to avoid export-related sectors (shipping, manufacturing riding on exports etc). Many developed economies are likely to experience a sub-par economic recovery as a result of consumers deleveraging, large government fiscal deficits and declining loan growth. While we can see sequential growth in exports across Asia ex-Japan, exports are unlikely to reach previous high levels (such as those in the first half of 2008) for a prolonged period of time. As such, we expect exports will continue to remain a negative contributor to GDP growth. Major drivers of economic growth will lie in investment and domestic consumption.
* Refers to the fund's exposure in domestic A-shares via participation notes.