Experienced South East Asia fund managers are taking a more cautious stance towards the consumer theme, according to the latest review of the sector by Standard & Poor’s Fund Services
“With a P/E ratio of about 15x (around the historic average), many managers feel Asian markets are reasonably valued. However, a number of the more experienced managers remarked that valuations were becoming expensive in areas such as consumer stocks and across the Asean markets, in particular Indonesia," says S&P fund analyst, John Monaghan.
Managers at First State Investments, for example, are cautiously positioned and avoiding cyclical exposure, as they believe that valuations are expensive. Consumer-related plays are through high weightings in staples names.
Meanwhile, Louisa Lo, who manages the S&P AA rated Schroder International Selection Fund – Emerging Asia, and the Schroders team take the view that fundamentals have peaked amid the surge in liquidity. They also believe that a slowing global economy and rising input costs suggest that positive earnings revisions may also be slowing.
Allan Liu at Fidelity says he still fully subscribes to the Asian consumer theme, but has scaled back Chinese consumer discretionary plays, especially those further down the cap-scale, following the levels of liquidity they have attracted. However, Samantha Ho and William Yuen, who co-manage the S&P A rated Invesco Asia Consumer Demand Fund, are – unsurprisingly – still positive for consumers and believe current consumer stocks valuations are at about historic mean levels.
Meanwhile, the IPO trend, led by China which saw 1,200 companies list globally in the first 11 months of 2010, raising USD255.3bn, shows no signs of slowing down in 2011. Reports suggest there are about 300 companies waiting for listing approval, while a further 500 companies are preparing to go public.
"Managers views across IPO participation are mixed," says Monaghan, highlighting comments from Invesco’s Stuart Parks who felt that the quality of companies listing deteriorated as the year went by. Blackrock’s Jing Ning waited before buying and subsequently picked up attractive stocks at below their IPO price, while others, such as Joseph Tse at Fidelity and Allan Lam at Templeton, added only small holdings from IPOs that fitted in with their portfolio themes.
