In our monthly series featuring fund managers and leading market experts, we ask Mr Kevin Chen, Pan Asia chief investment officer at AXA Rosenberg, about his investment philosophy and strategies
Published on Jan 20, 2013
Mr Kevin Chen says he is cautiously bullish on Asian equities and sees some opportunities in real estate developers in Singapore, China and Hong Kong. -- ST PHOTO: AZIZ HUSSIN
By Aaron Low
The bad news is that the problems affecting the global economy last year are likely to remain the same this year.
But the good news is that the skies are a lot clearer and should mean that markets perform better this year overall, said Mr Kevin Chen, Pan Asia chief investment officer at AXA Rosenberg.
Mr Chen noted that, in reality, nothing much has changed between last year and this year.
The macro-economic environment remains cloudy and uncertain, given the deep-seated problems in the United States and Europe.
But liquidity remains in abundance, thanks to the accommodative monetary policies of central banks around the world.
This should still support markets, said Mr Chen, whose firm oversees about US$21 billion (S$25.7 billion).
The firm's client base is both institutional as well as retail and funds are distributed mainly through private banks and accredited investors in Singapore.
The company's Asia-Pacific ex-Japan Equity Composite recorded an impressive 20.88 per cent gain over the past one year as of November, beating its benchmark rate of 19.03 per cent.
Q: Last year was a volatile year but markets still managed to do very well. This year, analysts are already talking up equities, especially Asian equities. What's your take?
Those risks present last year - slow growth in the US and Europe - will remain in 2013, so we will still see volatility this year.
But from recent data coming out, almost everywhere you see improvement.
If you look at Asia last year, it was mainly outflows from the region, except maybe for pockets of growth such as South-east Asia.
The theme seems to be different this year.
China is stabilising and, hopefully, growth will start again - slower but more balanced and, hopefully, higher quality.
But in order to sustain a rally this year, we will need to see the real economy recover.
If you look at the profit margins of companies in Asia, except for places like Thailand and the Philippines, margins were squeezed.
In order for the rally to continue, we will need to see a sustainable recovery in profit margins.
That's why I am cautiously bullish on Asian equities but there has to be a real recovery in earnings.
Q: Analysts have said that retail investors are the last to jump in and the first to get out. Is now the time to get in or is the rally already over?
At this moment we are seeing encouraging signs, on both the valuations and the fundamentals side of the market.
But to find out if the rally is a real one, we will have to wait till the first-quarter earnings and see what the outlook is for the rest of the year.
The first people to get in are the smart-money people but they are also short-term money. And when they see signs that things are not improving, they will run for the exit.
So that's where the fundamentals are the key to support the rally.
The conditions are better compared with those last year, however.
The managers who did well last year were those who were defensive, holding high-quality names, or those with higher exposure to South-east Asia.
Most of the managers are still defensive, meaning that the real money hasn't come in yet. And they will come in at the sign of the first recovery of earnings.
Our view is to focus on valuations but pay attention to earnings.
Q: Which sectors could do well this year?
Last year was a case of people doing better if they held higher-quality names, those firms which can generate earnings in a stable fashion.
But as a result, there is a relative increase in the gap of valuations between more cyclical names and more defensive names.
So we see good value in cheaper valuations on those which are more cyclical, including industrial, real estate and, to some extent, commodities.
We see some opportunities in real estate developers not just in Singapore but more so in China, and Hong Kong. We've also started to pay attention to consumer discretionary stocks.
Q: What about Chinese stocks? They've been depressed for a while but had a short rally recently.
North Asia, including China, will be an interesting place to look at. The region's under-performed the rest of Asia.
Last year, if you take out the banking sector, the rest of the market saw negative earnings growth. So the profit margin was depressed.
This year, for Chinese stocks to improve, profit margins have to improve.
Likewise, if you look at the Korean markets, they have performed relatively the same as the rest of the Asian markets.
But if you take out Samsung, which is 30 per cent of the market, the rest of the market was down almost 10 per cent to 11 per cent, relative to the rest of Asia.
And if the US recovery is more visible and concrete, Korea, which benefits both from China and the US, could be another very interesting area.
aaronl@sph.com.sg
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