UK - Asia major

Four fund managers discuss their investment strategies in the Asia Pacific market and reveal the sectors offering good value now and the ones with growth potential for the longer term

’Some companies are well placed to take significant market share’

Large parts of the world economy have continued to struggle but there are some companies in Asia that are well placed to take significant market share.

Samsung has set itself to be a dominant global force in every industry it enters, from smartphones to consumer electronics. The strength of its balance sheet will allow it to outspend most rivals in research, development and marketing while its ability to own the whole supply chain makes it unique.

It is at the forefront of technology and I expect to see a phone with a flexible screen in the next year or so.

Samsung has also forced competitors to their knees in the dynamic random-access memory sector, which supplies memory to laptops and computer games, and Nand sector, which supplies flash technology to memory cards. Japanese competitor Elpida has been struggling to stay afloat against the onslaught of Samsung’s technological advances.

In the TV sector, the only competitor of note is LG. However, the Samsung brand has embedded itself globally and allows the company to hold market shares without resorting to pricing cuts.

Lenovo, the Chinese PC producer, is looking to achieve a similar situation in its own market. This year, the company became the world’s second-biggest PC producer, with 30 per cent market share in its home market.

Encouragingly for Lenovo, while the global PC market was little changed at 1.7 per cent in 2011, its shipments grew by 29 per cent year on year. This was aided by deft mergers and acquisitions, followed by smooth integration. It is looking to grow aggressively in the tablet area, where it is likely to gain traction in the faster-growing emerging markets.

Suresh Sadasivan, head of Asian equities at Legal & General

’Healthy demand is one of the most exciting themes’

Newton is a thematic investor and within its Asian funds, ’healthy demand’ is one of the most exciting themes for multi-decade growth.

In India, the provision of healthcare is grossly under-supplied, with only nine hospital beds per 10,000 members of the population - well below the global average of 27. As most healthcare spending is financed out of pocket, demand for healthcare increases as affordability improves.

In addition, the rise of lifestyle diseases, such as cancer, diabetes and obesity, is driving rapidly increasing demand for healthcare.

The development of the medical tourism market provides an extra element of growth for Asian healthcare services, as Western patients choose to travel to take advantage of cheaper and more efficient medical care.

In India, an economy traditionally strong in the services sector, Newton’s preferred way to access this theme is via hospital operators. We own both Apollo Hospitals and Fortis Healthcare, who have established networks of hospitals across the country.

Apollo is a more established player, with almost 30 years’ experience in providing quality health-care services. Fortis is a newer entrant, with exposure both in India and pan-Asia.

In Australia, we favour stem cell company Mesoblast. Although its products are still in development, they have the potential to revolutionise treatments for a vast range of diseases and conditions such as heart failure, back pain and diabetes.

Caroline Keen is alternate manager of the Newton Asian income fund

’Underpenetrated sectors in China mean there is a potential for growth’

The large number of underpenetrated sectors such as internet and insurance in China means there is a significant potential for growth.

One company making the most of this is Tencent, China’s largest social-networking platform. It has 720 million users accessing services similar to Facebook (Pengyou) and Twitter (Weibo).

Tencent generates more revenue and profit than Facebook but is at half the valuation. It also has more revenue streams. The latest hit product Weixin, the Chinese version of WhatsApp, has become the top downloaded app in China. Weixin will cement Tencent’s leadership in social networking.

I expect 2012 will be a good year for Tencent with a strong lineup of new games, apps and videos. The stock is cheap at 20 times price to earnings against a 20 per cent three-year earnings per share compound annual growth rate.

As a leading Asian life insurer, AIA benefits from increased insurance demand from middle class, high net-worth individuals and the ageing population.

AIA has been able to take market share due to the quality of its agency team. Its growth in 2011, around 24 per cent against Chinese insurer average of 8 per cent, was mainly a result of reactivating existing agents and retiring non-profitable products.

As a result, new business margin improved from 33 per cent in 2010 to around 40.5 per cent in 2011.

AIA is expected to develop tier 2-3 cities in Guangdong and Jiangsu, where it has approval to open eight new sales and service centres. It also added agents in Hong Kong in early 2011, which has been a growth driver for Hong Kong’s life insurance market. These moves will help AIA to address the demand of the Chinese market.

Raymond Ma is portfolio manager for the Fidelity China consumer fund

’Long-term growth prospects are encouraging’

Two companies we like in the Asia-Pacific region are Taiwan Semiconductor and Hong Kong & China Gas.

Taiwan Semiconductor is the world’s biggest dedicated semiconductor foundry company a major beneficiary of the global trend towards integrated circuit outsourcing from both fabrication-less design houses and integrated design manufacturers. TSMC is considered to be the technology leader of all dedicated foundries, with a broad customer base and a management that ranks among the best in Taiwan.

During the global financial crisis, TSMC enhanced its dominant position in this industry and remained profitable while all its peers were loss-making. TSMC is cyclical but increasingly defensive given the ever increasing capital expenditure required to compete.

Hong Kong & China Gas produces and distributes town gas. Unlike other Hong Kong utilities, HKCG is not subject to a Scheme of Control. It has the flexibility to raise prices when required but production efficiencies have historically allowed HKCG to maintain exceptional margins without raising its tariffs by more than the rate of inflation. Long-term growth prospects remain encouraging as the company has significant operations in China, where gas volumes are already a multiple of those sold in Hong Kong. As the company continues to gain economies of scale in China, its returns there should continue to increase.

Angus Tulloch is manager of the First State Asia Pacific leaders fund

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