Toby Hudson, fund manager of Schroder Asian Growth which is a Recommended Fund for the Asia Pacific ex-Japan region, speaks to Fundsupermart on the opportunities he has identified for the fund.

Questions:

The first half of 2011 has been characterised by volatility and false dawns. How do you think the Asia Pacific ex-Japan region will fare in the second half of the year?
- 2011 started with markets worrying about strong growth in Asia and inflationary impacts in economies such as China and India
- Second half of 2011 is likely to be characterised by similar conditions as inflationary pressures in Asia do not look like they are peaking out
- Global growth is expected to slow with strong headwinds such as the Eurozone sovereign debt crisis
- With weaker markets in the first half, valuations have become cheaper and more interesting, investors’ confidence and expectations are lower which may build a base for better market performance in the second half
- The fund has been seeing better bottom-up ideas

Which country within Asia Pacific ex-Japan are you most positive on and why?
- The fund is driven by bottom-up stock and sector selection
- On that basis, the fund is seeing more interesting ideas in South East Asia and Hong Kong relative to Korea and Taiwan
- Focus of fund right now is on domestic Asian growth

Conversely, which country are you least positive on and why?
- Underweight in Korea and Taiwan markets and also in China
- Few bottom-up stock ideas

How successful do you think Asian governments will be in managing problems caused by rising inflation?
- Historically, Asian governments have been reluctant to raise interest rates to combat inflation
- Administrative measures to control prices are preferred e.g. caps on fuel prices and subsidies
- Such measures will cause distortions in the market
- However we have seen greater willingness to let currencies appreciate in this market cycle. For example in India where interest rate hikes have been fairly aggressive
- Though optimistic on government actions, much of these inflationary pressures are externally driven from commodity and fuel prices, and external shocks such as weather events

What sectors or markets do you find interesting at the moment?
- Given longer-term perspective where we see weaker growth in the developed economies, more robust and defensive growth in more domesticated Asian sectors such as consumer discretionary, consumer staples, retailing
- Underweight positions in ultra-defensive sectors such as telecoms and utilities