The constant domestic and global media focus on the state and fate of Chinese financial markets poses potential risks to local investors, in that they may choose to ignore the region as an investment option, foregoing significant growth opportunities warns Paul Moore, Founder and Chief Investment Officer, PM CAPITAL.
This is a key message being delivered this month across Australia, in a series of investor presentations. Both Paul Moore and Kevin Bertoli, PM CAPITAL’s Asian investment portfolio manager, are suggesting to investors to look behind the headlines to understand what is occurring in the region and what is likely to occur in a geography that is host to the biggest growth story in the history of civilisation.
“There is general agreement among economic commentators that Asia will be the epicentre of growth over the next decade as hundreds of millions of consumers move up the socio-economic scale to create a middle class behemoth” added Mr Bertoli.
“Middle class is defined as those households with daily expenditures between $US10 and US $100 per person. The numbers are both dramatic and arresting both in terms of percentage increase but more importantly in the absolute quantum change.”
“Between 2009 and 2030 the Asian middle class is projected to balloon from 525 million to 3,228 million – a 600% increase over the span of less than one generation. By contrast the next fastest growing region, the Middle East and Africa, the comparative numbers are 137 million in 2009 and 341 million projected for 2030 – an increase of 240%.”
“The figures for North America are negative growth (2009: 338 million; 2030: 322 million) in the middle class whilst for Europe the figures a fraction over static (2009:664 million; 2030:680 million),” he said.
Mr Moore said “That’s why we argue very strongly that it’s not a market for top down analysis or index huggers, but for value investors who know where and how to look for growth business.
“Not surprisingly we find these opportunities are not in financials or commodities sectors but those entwined to the rising tide of local consumption.”
“Whether countries with large addressable markets with low penetration, such as China, India and Indonesia, or countries benefiting from growth in wages such as China, again, or baby boomer markets where consumption patterns are transitioning such as Korea and Taiwan, there are businesses with excellent growth prospects due to their focus on local middle class consumption,” Mr Moore said.
“The areas we have been focusing on include online classified advertising and ecommerce, gaming, consumer, infrastructure and technology,” said Mr Bertoli.
He added: “By way of example PM CAPITAL’s Asian funds currently hold 51Jobs, Zhaopin and 104Jobs in the employment/jobs sector, Autohome Inc in the automotive sector and Baidu in the search industry.”
“In the recent past we have held Ctrip.com in travel; iCar Asia in automotive, iProperty group in real estate sector, Jobstreet in jobs/employment and Naver in search.
“Just as ecommerce stock have played out in the local Australian market we have and are entering similar invests in the ecommerce space across Asia.”
“In the case of Jobstreet we exited that position with a 187% gain plus dividends; with iProperty we exited with a 466% gain, whilst in the case of Zhaopin, which we still hold, the stock is currently the subject of a US$17.5 offer from a Chinese private equity firm to acquire minority interests which represents a 30% premium to the 2014 IPO price.
“For those who are committed to a simple investment philosophy of buying good companies at value prices and being prepared to back your judgement and hold those business over a reasonable period, usually three to five years, Asian businesses can provide diversification from the local bourse, in which most retirement savers are over invested, and solid medium term growth opportunity,” Mr Bertoli said.
