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Three big themes on fund managers' agendas this month

With the swathe of macro issues on fund managers' agendas each month it can be hard to prioritise which to tackle first. Here Citywire Global has canvassed three leading investors to find out where they will be concentrating their efforts in the short-term.

Corporate results

Aberdeen's Asia equity veteran Hugh Young says although he is worried about the slowdown in China and the state of its shadow banking system, his attention has been drawn this month to something else happening in the world’s second-largest economy.

‘Our prime focus over the coming weeks is to analyse the details of the corporate results that have just been, and are about to be, released and to infer from them the likely outlook for the year ahead.

‘So far, so good. Results have been pretty much in line with our forecasts, which were admittedly for a rather sober single-digit increase in aggregate net profits for the calendar year just ended, and the outlook is remarkably similar for the year we’ve just entered.

‘The three Singapore banks, together representing a fair percentage of our regional assets under management, recorded fair growth. But more importantly for us, they also demonstrated decent asset quality and strong capital ratios, despite the slowing in the domestic property market.

‘The same picture is also true so far for our Indian holdings, which notwithstanding extremely disappointing decision-making at the government level have shown, if anything, growth in excess of the regional average with every bit as strong balance sheets.

‘Looking ahead we still have the likes of Jardine and Swire to look forward to – for the former a big swing factor will be its operations in Indonesia, for the latter its Cathay Pacific airline business.’

Japanese wages

Wage growth in Japan will focus the analysts’ minds this month, according to Citywire A-rated manager Mark Davids of JP Morgan.

As negotiations between Japanese corporates and the unions get under way, Davids said a meaningful increase in pay could hold the key to boosting consumer confidence.

‘Wage growth is the next important step for Japan,’ Davids said.

‘We will get a good hint of the progress following March’s negotiations between unions and the corporations.

‘What people have not yet felt is better off, because real wages have not gone up yet.’

The analysts believe a rise in real wages of 1-2% is needed in order to lift the mood, and that a cooperative stance from the country’s big corporations could unlock the potential of Prime Minister Abe’s reform efforts.

Davids – who manages the JPM Japan Strategic Value and JPM Asia Pacific Strategic Equity funds – is bullish on Japan’s prospects for the year ahead, saying the market still looks cheap even after 2013’s meteoric rise.

‘Last year the Japanese market was the only one in the world to keep revising its earnings estimates upwards so despite the rise, Japan did not get expensive because of the constant re-ratings,’ he said.

Chinese healthcare

Bureaucracy has long stifled the flow of foreign cash into China, with would-be investors finding themselves tangled in red tape.

But Victoria Mio, Robeco’s chief investment officer for China and co-head of Asia Pacific equities, believes long-awaited reforms could finally open the doors to foreign investors.

The Citywire + rated manager said she expects reforms announced at China’s Third Plenum to begin to boost the economy in 2015 and 2016. ‘In the past, the government has always focused on economic reform but the roadblock was always the political structure because the existing bureaucracy was always resistant to change,’ she said.

Mio isn’t waiting until the reforms are enacted to capitalise on the expected surge in foreign direct investment. She believes China’s healthcare sector stands to be a major beneficiary of increased FDI, and her $1.35 billion Robeco Chinese Equities fund has a 6% weighting to the sector compared with the index’s 1.5% weighting.

‘We will see a lot more investment in healthcare reforms and private hospitals and the government is allowing more private companies to invest in the hospital space. Traditionally the sector has been dominated by government facilities,’ she said.

Meanwhile, Mio has been reducing her exposure to those financial stocks she expects to be hurt most by the impending reforms and will continue to avoid the giant state-run banks. ‘Banks will be hurt but the winners will be the insurers, the brokers and the asset managers,’ she said.

This article originally appeared in the March issue of Citywire Global magazine

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Victoria Mio
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34/69 in Equity - China (Performance over 3 years) Average Total Return: 16.41%
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46/86 in Equity - Greater China (Performance over 3 years) Average Total Return: 17.66%
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33/228 in Equity - Asia Pacific Excluding Japan (Performance over 3 years) Average Total Return: 32.32%
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