When we caught up with Asian investment expert Hugh Young in 2011 he wasn't chasing China. And the manager of IC Top 100 Fund Aberdeen Asian Smaller Companies Investment Trust (AAS) is sticking to his guns in 2014. The main problem with China, he says, continues to be lack of quality at the company level. "Many companies will do what is good for China rather than what is good for investors," says Mr Young. "China's economic growth is slowing dramatically and it is quite difficult for companies to grow their profits."
He is most excited about the election effect in Asia, where political reforms have made a big difference this year. The Indian and Indonesian markets have posted the biggest returns to investors to October 2014.
The election of Indian prime minister Narendra Modi in May 2014 has been hailed as the beginning of a 'new era' for India, with Mr Modi expected to initiate the biggest policy shake-up in decades. Mr Young says: "India has been pretty awfully run by governments but has some good companies so is the opposite of China. It is now one of the most expensive markets in our universe. However, there's lots going for India, for example lower commodity prices, and Mr Modi has a very strong power base with full support from parliament."
A few months after the Indian election, Joko Widodo, better known as Jokowi, was inaugurated as president of Indonesia. Mr Young says: "Jokowi is another version of Modi, an outsider with a clear reform agenda. However, he doesn't have full backing in parliament. It is not going to be as easy for him as for Modi but people are expecting great things from both."
Mr Young says that growth out of Asia is still comparatively strong, but sluggish by historic standards. "Overall, Asia is still the fastest-growth region in the world, but it is growth that is lower than 10 years ago," he says.
Aberdeen Asian Smaller Companies has had a strong rebound in performance this year, with Mr Young emphasising that the trust is positioned very differently to its benchmark, the MSCI AC Asia Pacific ex Japan Small Cap index. However, Mr Young also admits that the trust is "pricier than it has been for a while", being "more expensive than the small-cap benchmark".
The top holding is Aeon Co, a Malaysian consumer business that operates a chain of superstores, selling a broad range of goods. Mr Young says: "Retailers in Asia are often at the mercy of the property company. The property developer has too much power over the retailer and squeezes them too hard so they can't make money. But Aeon has bought the shopping malls itself." The company has conservative management and its expansion has been backed by healthy cash flows. It may benefit from the government relaxing rules on expansion by large retailers.
Many of the top 10 holdings in the portfolio, including Aeon and Multibintang, an Indonesia-based beer company , have been held for more than 10 years.
However, there has still been some significant portfolio activity in 2014. For example, the trust sold its holding in Thai shipping activities specialist Regional Container Lines because of concerns over its weak balance sheet amid a tough industry outlook. Mr Young says: "We thought it might be our first bankruptcy, but we managed to sell it. The outlook was very shaky."
Mr Young has also initiated a holding in First Sponsor Group, a Singapore-listed China property company.
