Emerging Asia has turned a corner, says Kerley
The Henderson manager believes that while quantitative easing has not sorted out underlying issues in the West, it will give regions such as China a boost.
The various head and tailwinds that have plagued the Asian markets in recent months are finally petering out, meaning investors can now get exposure to the long-term growth story at a discount, according to Henderson’s Mike Kerley (pictured)
Kerley, who manages the Henderson Asia Dividend Income
fund, believes that current macro policies such as QE3 have not fully addressed the underlying issues in the West but will give regions such as China a boost.
"Asia is still a growth story: valuations are compelling and corporates are cash-rich, lowly geared and in a strong position to increase distributions in the years ahead," he said.
"The commitment to low interest rates until 2014, and maybe longer, is positive. Rates should remain low in Asia, though there will be inflationary implications from excess liquidity that could manifest itself in high commodity prices."
"At this point the increased liquidity and low interest rates provide a helpful environment for Asian equities," he added.
Kerley understands why investors have been put off by Asia and particularly China in the last couple of years, but he believes that the region is likely to build on its better performance in recent months as measures by the government begin to take effect.
Performance of indices over 3-yrs
Source: FE Analytics
"It’s been a painful journey in China over the last two years or so," he said. "The economy has slowed with GDP growth of 7.6 per cent in the second quarter, but it’s not slowed any more or less than the government predicted."
"Inflation is not really an issue so we are optimistic that the selective loosening measures – specifically related to property and infrastructure spending
will positively impact growth in the coming quarters."
The manager believes that investors should not be concerned with the imminent leadership changes in China, as the monetary policies are likely to carry on regardless.
He commented: "The transition of power has added a degree of policy uncertainty. The elections are just over a month away and we’re not expecting any significant changes in policy from the politburo."
"The Chinese will continue with their selective stimulus programme, which is specific to certain industries/areas, and will be reluctant to come out with any global announcement that could impact asset and commodity prices."
remains watchful of the ongoing tensions between China and Japan over the uninhabited Diaoyu Islands however, and thinks this has the potential to derail a recovery in the region.
"Japan has been the dominant power in the region, supported by the US for the last 10 to 20 years, but China’s growth and its new position as number-two in the pecking order of the largest countries would suggest that China is going to try and impose itself," he said.
"The negative rhetoric has resulted in a backlash on Japanese products sold in the Chinese market, so hopefully they’ll find a solution to this quickly. The possibility of an escalation is something to keep an eye on."
Performance of fund vs sector and index since Nov 2009
Source: FE Analytics
Since Kerley took over Henderson Asian Dividend Income in November 2009, the fund has beaten its benchmark and sector average.
According to FE Analytics
, it has returned 26.32 per cent while its MSCI AC Asia Pacific ex Japan benchmark and its IMA Asia Pacific ex Japan sector have returned 23.87 and 22 per cent respectively.
It is currently yielding 5.4 per cent – among the highest figures in the entire sector.
has 11.7 per cent invested directly in China, but has a significant degree of indirect exposure via Singapore and Hong Kong, which have a weighting of 12.8 and 12.9 per cent respectively.
The £86m Henderson Asian Dividend Income fund has a total expense ratio (TER) of 1.55 per cent and a minimum investment of £1,000.