Ask The Experts: Asian Small Caps, A Real Under-researched Opportunity
As market sentiment improves this year, where do fund managers find the most promising investments? John Bugg, Head of Asian Listed Equities at Macquarie Funds Group shares his optimistic views on Asian small caps.
Why are you positive on Asian small and mid caps? Can you share with us your general outlook and investment strategies?
- Historically, the excess return of Asian small caps is around 7% over the benchmark, outperforming large caps
- In Asia ex Japan, there are only around 24 small cap fund managers, compared to more than a thousand in US; it is an under-researched universe, so fund managers who have the information advantage really pays off in this market
- Easing inflation and monetary policies drives the market
From a valuation stand point, are small cap companies still selling at a discount at the moment?
- Small caps are trading at a discount around 10%-15% at the moment
Where do you find the most promising opportunities? Any countries or sectors that are likely to do better this year?
- Overweight: consumer discretionary has good value opportunities
- Underweight: IT sector has poor bargaining power, property developers have structural issues
- Regions: overweight China and underweight India
China is probably one of the must-haves in an Asian portfolio. What is your take on a slower growth target in China and does it change any of your weightings in the portfolio?
- From a bottom up perspective, there are plenty of opportunities in China
- Monetary moves will come through in the 2H, making now a good entry point for Chinese stocks
Small caps have a reputation of greater volatility, as compared to large caps. How do you manage investment risks and what downside should investors be aware of?
- Small cap companies are more volatile and less liquid
- Fund managers can diversify to manage the stock specific risk, there is a massive universe of 3000 companies in the portfolio
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