Japan has already suffered a significant setback in recent weeks, with the Nikkei 225 index falling more than 7 per cent in a single day last month. While Young doesn't anticipate a crash on this scale, he says corporate downgrades in emerging Asia are on the horizon, and could prompt a correction in the coming months.
"Consensus earnings forecasts appear too rosy, given the current lacklustre macro-economic backdrop," Young warned.
"Downgrades to these estimates in the months ahead could trigger a stockmarket correction."
Young (pictured) says there are still abundant opportunities in Asia for investors with a longer time horizon, despite the potential short-term setback.
"With Japan joining the US and Europe in printing cash, we would expect the ample liquidity to continue supporting asset prices for some time to come," he said.
"We remain optimistic about Asia’s long-term prospects, as economic fundamentals in the region remain robust, while corporate profits are likely to continue growing, albeit at a slower pace."
Young is taking a high-conviction stance on Singapore and Hong Kong, relative to the benchmark, holding his largest country overweight positions in the two Asian countries.
"[Singapore] is an open economy, backed by sound economic policies, amid a relatively stable political environment," he said.
"It is home to many well-run businesses, with high standards of corporate governance and scope to expand across the region."
"[Hong Kong] offers listed companies that have diversified, regional business activities – particularly those that provide an exposure to China – with the added advantage of better standards of accounting and transparency."
On the other hand, the FE Alpha Manager is steering clear of direct exposure to China, and has a sceptical view of Australia and Korea – with underweight positions in all three countries.
"China remains one of Asia’s most exciting growth stories but the positive macro environment does not always translate into stock market gains."
"We prefer to gain exposure via well-established Hong Kong-domiciled companies that operate in the mainland."
Young says there are solid stock-specific stories in Australia, but he still prefers other countries in Asia that offer broader exposure to the region and that have better growth opportunities.
Even though Korea is home to well-known brands such as Samsung and Hyundai, Young remains wary of the country.
"The domination of the chaebol or huge conglomerates can make the business landscape less competitive, while moves to prevent hostile domestic takeovers have also raised concerns," he said.
Funds
As Bestinvest’s Jason Hollands said in an article earlier this weekend, investors who are new to the Asia Pacific region or who have a smaller amount to invest should aim to gain broad exposure from a fund that has the flexibility to invest in Japan.
Young heads up one portfolio that covers both the Asia-Pacific and Japan regions – the four crown-rated SJP Far East fund – as well as his top-performing Asia Pacific ex Japan funds.
He also manages a portion of the multi-manager Witan Pacific IT, which is able to invest across the entire region, including Japan.
The £432.4m SJP fund has outperformed the IMA Asia Pacific including Japan sector and the MSCI Asia Pacific index over three, five and 10 years, although it has slightly lagged both benchmarks over the last 12 months.
Over the last decade, the fund has made 296.15 per cent compared with 228.88 per cent and 195.09 per cent from the sector and index, respectively.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The manager has 41.5 per cent of the fund invested in the Pacific Basin and nearly a quarter of the portfolio in Japan.
Among the fund’s top holdings are Oversea-Chinese Banking Corp, his own Aberdeen Global Indian Equity fund and major mining blue chips Rio Tinto and BHP Billiton. He also holds international banking firms HSBC and Standard Chartered.
Young and the Aberdeen Asian equities team have been managing the Witan Pacific IT since March 2005.
They were joined by GaveKal Asia Limited and Matthews International Capital Management in April last year.
The investment company has outperformed the MSCI Pacific Free index over three, five and 10 years, and the IT Asia Pacific inc Japan Equities sector over three and five years.
It has surged ahead in the performance tables over the last 12 months, up 40.68 per cent while the sector and index gained 35.91 and 34.31 per cent respectively, according to FE Analytics.
Performance of trust vs sector and index over 1yr
Source: FE Analytics
The trust is trading on a discount of 11.5 per cent with 3 per cent gearing. It has a dividend yield of 1.7 per cent and ongoing charges of 1.58 per cent, including a performance fee.
The SJP fund requires a minimum investment of £1,500 and has ongoing charges of 1.63 per cent.
