Between January 2000 and the end of 2007, the MSCI Asia ex Japan index more than quadrupled the returns of the FTSE 100, which made just 19.41 per cent.
However, since then the outperformance has been considerably lower.
Our data shows the FTSE 100 has made 26.94 per cent since January 2008 compared with 32.29 per cent from the MSCI AC Asia ex Japan index.
Performance of indices
| Name | 1 Jan 2000 to 31 Dec 2007 | 01 Jan 2008 to 28 May 2013 |
|---|---|---|
| FTSE 100 |
19.41 | 26.94 |
| MSCI AC Asia ex Japan | 81.48 | 32.29 |
| MSCI EM (Emerging Markets) | 147.14 | 23.79 |
Source: FE Analytics
A growing number of managers are warning of the need to be highly selective when making investments to best take advantage of the revolutionary growth in the emerging middle class in Asia.
With this in mind, FE Trustnet looks at three trends investors can tap into to get the most out of the Asian growth story.
Luxury goods
Peter Kirkman (pictured), manager of the £165m JPM Global Consumer Trends fund, says that tapping into growth in luxury goods sales is a sound strategy.
The MSCI China index has returned just 6.57 per cent over the past three years, despite growth in the country that puts the developed world to shame. Kirkman says that one way to make money in China is to focus on the luxury goods sector, much of the business of which is not captured in official figures.
"The data doesn’t reflect the consumption story as it doesn’t take into account spending overseas," he said.
"Global luxury sales are still increasing and we have recently had great figures from Burberry. More and more sales are taking place overseas."
"Finding stocks with the right multiples [valuation] is the issue, not the whole story."
Arjen Los, manager of the £22m Dominion Global Trends Consumer fund, which has five FE Crowns, says that even within the sector it is necessary to be selective.
A recent anti-bribery crackdown has made the display of high-end luxury goods less approved, and some analysts warn it will have a serious effect on the health of the sector.
However, Los points out that it is largely the more expensive goods that have fallen out of favour, and that the story remains compelling further down the scale.
"Luxury consumption in China is changing, not slowing: the Chinese consumer has become more selective in choosing luxury goods," he said.
"This is partly driven by temporary effects (anti-bribery enforcement as mentioned earlier), but more importantly, reflects the structural trend of an increasingly educated consumer."
"Companies are facing changing purchase-decision drivers and diverging revenue trends, even within product categories."
"This is changing the landscape for high-end luxury (Louis Vuitton versus Burberry), sportswear (Adidas versus Nike) and jewellery (Cartier versus Tiffany) alike."
"As a consequence, investing into the luxury sector has to be selective ('being in China' is no longer a recipe for success)."
"Diverging sales prospects have become more visible and management quality (size and shape of distribution channels, inventory management, product adaptation to local tastes, sourcing, and so on) has become crucial in selecting winners and losers in this growing sector."
The Dominion Global Trends Consumer fund has made 50.06 per cent over three years, according to data from FE Analytics, while the MSCI World index has made 40.54 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The fund aims to tap into emerging market growth, largely Asian, by buying western companies that sell to the growing middle class in the sector.
Hermes and InterContinental Hotels Group are the fund’s two biggest holdings, and it also has a position in Swatch.
The latter is expected to be boosted by the conclusion of a free trade agreement that took place between Switzerland and China earlier this week.
The rise of the internet business
Another trend that Kirkman points to is the development of doing business over the internet.
The manager says that China has added 250 million mobile internet users over the past two years, but the country is still three to four years behind the US in terms of the amount of business carried out online.
The country is likely to catch up in the coming years, the manager explains, meaning that investors can make a lot of money from the trend.
One stock he hopes will benefit from this theme is Baidu, the Chinese equivalent to Google.
"Baidu was trading on 100 per cent premium to Google, but over the past 18 months it has come down to a zero premium," he said.
"They are both big holdings in the fund, but we are allocating more money to Baidu."
Data from FE Analytics shows that only IM Hexam Global Emerging Markets, a £36.4m fund run by Bryan Collings and Grant Shotter, currently holds Baidu in its top-10.
Tencent Holdings is a more popular stock with managers looking to invest in this theme. The Chinese company is the third largest internet company in the world after Google and Amazon, and runs messaging and social network sites in China.
Thirty-one funds hold it in their top-10, according to our data, including Henderson China Opportunities, Ignis Pacific Growth and Fidelity Emerging Asia.
Be country-specific
Another way to beat the Asian index is to focus only on the higher growth countries in the sector.
These have largely been the ASEAN countries in recent years, as FE Trustnet showed in a recent article.
Data from FE Analytics shows that the region has been through a strong period of outperformance in recent years, with the FTSE ASEAN index up 62.63 per cent over five years against the 32.75 per cent of the broader region.
Performance of indices over 3yrs
Source: FE Analytics
Camille Vergara, manager of the GAM Star Emerging Asia Equity fund, says that this outperformance is set to continue, as many of the countries in the region, including Thailand, Indonesia, the Philippines, Malaysia and Singapore, are in a similar position to the one China was in before its stock market boom in the first part of the last decade.
"The current economic development in south-east Asia can be likened to the development of China some 15 to 20 years ago and we anticipate an extended period of faster-than-normal growth in the foreseeable future," she said.
"The growth also relies on domestic demand rather than just export-led growth."
"To serve the growing demand of a large population base with rising disposable income, the region will have to step up investment in infrastructure, and in production capacity across various industries."
The recent formation of the ASEAN Economic Community, a trade organisation similar to the EEC, should increase intra-regional trade and infrastructure spending, she says.
The $759m Baring ASEAN Frontiers fund invests in the region and has won five FE Crowns for its strong recent performance.
