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Worries about the continued fallout from the still unfolding US credit crisis, concerns about Asian share price valuations having risen sharply over the past months, and the potential impact of a global economic slowdown havenÆt caused him to change his views about this region.
That doesnÆt come as a surprise considering he remained relatively optimistic about Asia even through the worst of times with the triple threat of the US invasion of Iraq, the deadly Sars virus that swept through many parts of the region, and the bird flu that claimed many lives while simultaneously threatening the poultry and related livelihood.
ôIf thereÆs a mild slowdown in the US, thatÆs going to be quite positive because Asia will import that lower interest rate environment and should be able to withstand the slowdown,ö says Beattie, head of Asian equities New Star, which manages around $50 billion worldwide, including in excess of $2 billion in this region. ôIf you are running money on a global basis, Asia is a pretty good risk-reward bet.ö
Overall, Asia is home to countries that have high foreign reserves, lower levels of foreign debt compared to previous years, strong imports, manageable inflation and undervalued currencies, he notes.
Beattie is ônot manically bullishö over Asia, however, noting there is a tipping point where a worse-than-expected US economic slowdown could hurt exporters in the region. ôIn Asia, most of the countries have a domestic market that is still relatively quite small to their trade account. ItÆs difficult to be too confident.ö
Even in a worse-case scenario for the US economy, Asia will still outperform, he says. ôWhere else are you going to put your money? Are you going to put your money into markets where youÆre looking at a major credit crisis?ö
New Star looks at earnings, valuations, macroeconomic conditions and how these affect a particular company, liquidity and politics when constructing and maintaining its portfolios.
Beattie is keen on China and property such as Guangzhou R & F Properties, where valuations have already come down a bit. He also likes Hang Lung Properties and Kerry Properties, which have lagged over the past six months but will likely outperform the more Hong Kong-dominant blue chips; and Shenzhen Investments, which he says is no longer just a conglomerate but is now a more focused company thatÆs well-positioned in property and with a management that has more incentive to look after shareholders.
ôThis coming year is going to be very much looking to see how events unfold,ö says Beattie, who has been a fund manager for around 15 years, and has been the head of Asian funds at New Star for around eight years. ôThis past year was more about putting down some big bets and holding them and not losing your nerve.ö
He notes that he did lose his nerve on a few occasions this past year, such as when he sold shares in insurance companies such as Ping An too early.
Entering the next year, he is making similar bets of staying overweight in Hong Kong and China, which make up around 45% of his $55-million New Star Asian Opportunities Fund, and preferring Southeast Asia over Northeast Asia.
ôThe valuations in Hong Kong and China no longer look cheap, but if liquidity is that strong, it could push valuations to the extreme,ö he says.
Beattie is keeping a close eye on how aggressively China attempts to prevent an overheating of its economy and whether or not it will take closer steps towards monetary tightening and allowing its local currency to appreciate.
He is still staying away from companies that are too heavily geared, no matter how bright its earnings outlook appears to be. ôGlobally, credit markets are more fussy about who they lend to and how much they charge. Good, high quality companies will benefit from this.ö
As of end-October, the top holding of the New Star Asian Opportunities Fund was China Mobile, which contributed the most to the portfolioÆs nearly 11% gain that month because of huge demand for the stock following its release of better-than-expected subscriber growth figures and profits. Others in the top five were Shenzhen Investment, Rexcapital, Sun Hung Kai Properties, and Cnooc.
The portfolio keeps around 2% in cash, and that will likely be maintained in the coming year, to be able to take advantage of any new investment themes or bright ideas that could surface.
ôItÆs dangerous to raise the cash level now,ö he says. ôIn a typical bull market where the credit cycle is positive and there is a lot of liquidity, you will have some very big one-off jumps. And if you miss a handful of trading days within a year, youÆll have terrible performance.ö
Apart from Hong Kong and China, Beattie is also bullish over India, where he favours domestic-oriented companies and is shying away from software-related companies. ôWe were sceptical about India over the past two years. But the central bank has been proactive about tightening monetary policy at the right time and now they have been able to ease up on this policy and thatÆs impressed me so now we are adding to India.ö
Beattie is positive on other markets in Asia, except Taiwan and South Korea, where his fund is underweight. Political uncertainty is still a major obstacle in Taiwan, while in South Korea the issue is the difficulty in finding companies that meet the companyÆs investment requirements.
Excess liquidity is among the reasons Beattie is bullish over Asia, and he isnÆt talking about momentum investing but the actual excess supply of money thatÆs bound to find its way into equities.
New Star measures the amount of money printed by the central banks and adds that to the money being created by the banking system, while comparing that to the industrial output to get a proxy for the demand for money. Beattie expects much of the excess liquidity in Asia to go mostly into equities. ôThis is very much an equities-centric region.ö
Around $2 billion in Asia may not seem like much compared with New StarÆs total assets under management worldwide, but Beattie says that has to do with the mandates it receives from investors. Many of the New Star clients with Asian exposure are US institutional clients, and some of them have allocated up to 12% of their global equities portfolios into this region.
Marketing and advertising of New Star funds are centralized in London, which also serves as the base for the company's fund managers worldwide. Research is also done by the fund managers, who travel frequently to meet with executives of companies they are interested in.
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