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INVESTMENT MANAGEMENT


Taking the long view M


Over the past decade, the Asia ex-Japan region has delivered a compound return of 13.6 per cent a year, significantly outperforming the MSCI AC World Index annual return of 4.3 per cent. However, Asia still remains 38 per cent below its peak levels of 1993, despite its far superior fundamentals.


aple-Brown Abbott is enthusiastic about the long-term potential for Asian stock markets to perform strongly. Asia continues to offer a unique opportunity


for long-term wealth creation afforded via very strong balance sheets across both the government and the private sectors, attractive nominal growth potential, favorable demographics in many countries and a nascent consumer class. They are particularly attracted to the many potential bottom-up stock opportunities. The rewards for specific company research in Asia remain enticing given the still relatively fragmented, broad and under-researched nature of the market. Today there are 2930 listed securities in the region with a market capitalization in excess of US$500m, compared to 1899 in the USA.


Long Term Re-rating Potential


MSCI AC Asia Pacific ex-Japan relative to MSCI AC World Index 1/1/90 = 100


100 125 150 175 200 225 250


50 75


1994 1995 1997 1999 2001 2002 2004 2006 2008 2009 2011 2013 2015 NB: Relative performance (USD) re-based to 100


This graph shows the relative performance of the Asia ex-Japan region to the rest of the world between 1990 and 2011. Relative Performance has been indexed to 100 from January 1990.


Source: MSCI


MSCI AC Asia ex-Japan relative to MSCI AC World Index (USD)


Despite this, there is a common perception among potential clients and consultants that in high-growth markets such as Asia, one should choose managers who focus on the fastest-growing countries, sectors and companies. Such an approach has frequently led to overcrowding in markets such as China and India, which have been among the worst-performing in the region over the past three years.


The backdrop Despite being home to more than half the world’s population and foreign exchange reserves, and significantly more than half the world’s primary capital market activity last year, the region is still less than 10 per cent of the World benchmark. The prevailing valuations of Maple-Brown Abbott’s


Asia ex-Japan portfolio are attractive, with a forward price-earnings ratio of 8.5, a 3.9 per cent dividend yield and 1.2 times net tangible assets, and the underlying balance sheet strength of the portfolio remains very strong.


The pitfalls A significant retracement in corporate earnings from current peak levels in response to a slower global growth trajectory poses a significant risk for a still export- dependent region, although the market already appears to be discounting this risk. While there have been significant improvements


over the past decade, the level of corporate governance, regulation and accounting quality is typically lower in Asia. When screening cheap companies, Maple-Brown


Maple-Brown Abbott has been managing money in


the region since 2002, and over that time has delivered a compound excess return of 3.7 per cent a year before fees. They believe that a value-oriented investment philosophy works in Asia just as it does elsewhere in the world – the predilection for investors to abhor losses more than they seek gains is just as prevalent in Asia.


Abbott pays close attention to governance – specifically the alignment of interest between themselves as minority investors and the dominant shareholders or principals, be they state or private. When these interests are aligned, effective capital management combined with strongly growing revenue streams can prove greatly rewarding for shareholders. Investors new to the region must contend with


much shorter investment horizons. This plus the significant impact of foreign fund flows – often fast money – demands a genuine long-term investment perspective.


FAMILY OFFICE: ASIA TOMORROW 65


OPERATIONS


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