W ith almost $60bn (€47bn) under management, Mirae Asset Global Investments is a giant among emerging-market investors, but South Korea still accounts for almost three quarters of the money it manages.
After expanding through the Asia-Pacific region over recent years, 2007 marked a big step for the firm as it established an office in London, followed by new offices in the US, Brazil and Dubai this year. By the beginning of 2009 it is on track to offer European investors a range of eight Sicavs based on its core strategies, including Global Emerging Markets, “Chindia” and Asia-Pacific consumer- and infrastructure-sector funds.
European demand
Do Europeans still want to buy this stuff? There certainly seems to be a lot of value available, and the sell-off to Asian-crisis-level P/B ratios has been indiscriminate, to which Mirae’s bottom-up stockpicking would be ideally suited. Some might argue that that is the case across all markets, and that the main driver for European allocations to emerging markets is diversification.
Given the collapse of the “decoupling” argument this summer, why not just go for long-term yield in beaten-up developed markets instead?
“We have to differentiate decoupling in terms of economic growth and the stock market,” says Wilfred Sit, regional CIO for Asia Pacific.
“It’s the same global liquidity that is investing in global stocks, so when they fall they all fall in the same way. Markets have become correlated because fundamentals are not driving share prices right now – it’s liquidity. But China is still growing at 7-8 per cent while the US is contracting, so longer-term, I do think there will be decoupling of stock markets, because they are driven by different economic fundamentals.”
Domestic focus
Although emerging markets have suffered thanks to deleveraging global investors, they are not beset by deleveraging local companies, consumers or governments – who learned tough lessons when their dollar debt liabilities ballooned with the currency depreciations 10 years ago.
Like many other Asian equity managers, Mirae’s portfolio has become more domestically-focused recently: at the same time as being a long-term growth story, that has proven to be a defensive position.
“Since the commodity boom we have been shifting money away from exporters - manufacturers who suffer from the rising cost of materials, labour, environmental stewardship and renminbi appreciation,” says Mr Sit.
High savings rates, low household debt and governments willing to stimulate demand also makes the consumer sector surprisingly robust.
This can include healthcare, which Mr Sit sees as ready to exploit opportunities from China’s forthcoming reforms and an expanding middle class that is more likely to see this (together with insurance) as a staple cost. But retail presents openings, too.
Consumer staples
“I think that there is still a lot of potential in this area – it’s just picking the stocks that will benefit from this downturn by consolidating their market share, and weighting towards consumer staples over consumer discretionary,” says Mr Sit.
“Consumer staples companies are likely to gain market share from consumer discretionary – because of the trade-down from restaurants to fast-food and eating at home, or between supermarkets, for example,” he says.
Technology also plays a part in the current sector allocation – one reason why Taiwan is an overweight within Mirae’s overall Greater China tilt. Taiwan’s market is yielding 8 per cent plus and firms like Taiwain Semiconductor Manufacturing Company, by far the biggest semiconductor foundry in the world, with strong competitive advantages, is yielding 7 per cent plus.
“It’s just cheap,” says Mr Sit. “But at the same time these companies have dominant global positions in industries with very high barriers to entry, and they are cash-generative.”
Given that the Asia-Pacific problem is liquidity flows rather than local leverage, it is not surprising to find Mr Sit waiting for the signal to shift from defensive positions into “beaten-up cyclicals” rather earlier than most developed-markets managers.
Flexibility is the most important thing in such uncertain times, he says, but alongside the high-yielding defensive tech, consumer staples, healthcare, telecoms and utilities stocks he is also buying on weakness among long-term domestic-demand beneficiaries like selected banks, insurance companies, consumer discretionary names and construction firms.
Bricks and mortar
“Construction-related companies in China are a very safe place to benefit from increased government spending on infrastructure, which will not be constrained by the economic slowdown and is expected to add around 2-3 per cent of growth over the next two years, respectively,” he says.
“There are really only three companies in China that have the scale to do massive projects nationally,” says Mr Sit.
