Acorn Capital head of equities Douglas Loh said there should be exposure to Asia in every diversified portfolio.
“Asia is characterised by market inefficiencies, a large investment universe and higher economic growth rates driving a rapidly expanding middle class,” said Mr Loh.
“Until recently, China’s economic growth has been driven by exports. However, the next stage of its development will see a growing consumer class purchase goods and services associated with a higher standard of living,” he said.
Mr Loh said that by 2022 more than 75 per cent of China’s urban consumers will earn between RMB60,000 and RMB229,000 a year, compared to four per cent in 2000.
Seres Asset Management chief investment officer Evan Erlanson said Asia’s demand pool is larger than all other emerging markets, which allows it to support more sustainable growth and innovation over the long term.
He said that China is in the early stages of financial reform that will eventually lead to higher real rates, lower asset prices and the more rational allocation of capital.
“This process is likely to help resolve some of the excesses of the past 14 years and give investors more opportunities to make rewarding long-term investments in Chinese equities,” he said.
Mr Erlanson said investors should, however, avoid companies with a high degree of government control or ownership or those in a position to perform national services.
“As a fund manager, we try not to think of Asian markets in their current form - instead, we anticipate how they are likely to develop structurally over the next decade and choose the companies that we believe are most likely to rise to the top,” he said.
“Such a strategy will deliver the benefits of Asian growth even if the broad market does not perform well.”
Mr Loh said the Asia ex Japan small cap space is an ideal hunting ground for investment opportunity.
“There are approximately 5,000 companies in the universe across 10 countries and 12 industries,” he said.
“A huge proportion of these companies are not on the radar of investors and professional analysts, meaning the opportunity to discover well-managed small companies generating attractive returns for investors is high.”
He said as small caps tend to be more volatile than large caps, investors should be holding onto these investments long enough for them to pay off, preferably at least five years or more.
