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LatAm selectors reveal their top bets in Asia

Over the past few months demand for emerging markets has been on the rise, with many investors and flows going toward Asia-focused funds. We asked fund selectors whether they are looking beyond their local comfort zones and investing in the Asian market.

ELINA THERESINE

K&B Family Office

Panama

As a result of low commodities prices, unsatisfactory export growth and political scandals, emerging markets (EMs) have been disappointing over the past few years. However, with an overvalued US market, low interest rates across the globe and a weak dollar, the trend is now reversing.

EMs are making a strong comeback this year, becoming more and more attractive to investors – especially Asian equities. China’s stability is a big factor in the bullish view on this region. The People’s Bank of China is getting a handle on credit and monetary risks, inflation is stable and domestic demand remains strong.

Given this positive scenario, Asian markets have won back our attention.

We recommend to our conservative clients the long-only BL Equities Asia fund for its excellent risk management. It only holds stocks with solid fundamentals. The fund manager focuses on consumer staples, is cautious with the tech sector and has zero exposure to commodity firms.

For cautious investors who want to gain wider exposure to EMs, we recommend ETFs for diversification and cost-efficiency: the iShares MSCI Emerging Markets ETF and the SPDR S&P Emerging Asia Pacific ETF are both great options.

For those eager to take more equity risk, we advise investing in Asian small caps. They are typically in the early stages of their development, so they can provide higher growth over the longer term.

We favor the Schroder Small Cap Discovery fund, focused on India and Taiwan. It is concentrated on higher-growth sectors such as healthcare, and provides coverage of fast-growing companies.

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SEBASTIAN GAZMURI

Aditus

Chile

Our portfolios are structured with a view toward the long term, so they have a very conservative risk profile. For that reason we are not exposed 100% toward Asia in our portfolios and strategies. We prefer to choose global funds, which have some exposure to the region.

We share the view of the potential in this region and in emerging markets in general. However, our portfolios are more conservative and through them we are seeking to minimize the volatility and deliver stable returns. The allocations tend to range from 90% to 70% fixed income. The exposure we have to these markets is through funds such as the Invesco Global Equity Income and GAM Star Balanced funds.

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SEBASTIAN SILVA

Avante Financial Group

Colombia

According to the latest report from the IMF, the global economy will continue on a positive path for the next two years.

It highlights that the US economy will be impacted by the cuts in fiscal stimulus that the Federal Reserve will carry out in the medium term, placing growth at only 2.1%.

However, the IMF also signals that in the case of EMs, most countries will continue growing at higher levels than developed markets, estimating annualized growth close to 3.6%.

Investors who have been holding assets that are trading at historically high prices have now turned their resources to markets such as the Asian market, which is characterized by paying high dividends and offering stable credit ratings with little economic risk.

Our strategy for the second half of the year will be focused on maintaining an overweight in high yield assets in emerging markets. We’re hoping for an improvement in commodities behavior and that the current system of higher exports and lower imports in Asian countries will help to boost those economies. In our international equity portfolios we are overweight in assets with exposure to countries such as India, China and Japan, which pay a very good risk-adjusted premium. In terms of assets managers, we like some strategies from Schroders and Aberdeen.

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DANIEL THENOUX

THX Inversiones

Chile

2017 so far has been a great year for almost every stock market around the world, and Asia is no exception. All equity markets seem to be taking advantage of the easy money that has been deployed around the world and its consequences.

The truth is that I see a whole lot of risk, so we prefer to be out of or underweight EMs around the world.

Nevertheless, there are some options we like in Asian equities. We would recommend the Fidelity Pacific Basin, Matthews Asia Dividend and Vanguard Pacific Stock Index funds. All these funds are well diversified and have had very good returns this year.

The markets could come under pressure soon, so we advise caution. At least have a diversified portfolio, which could help a lot in case the correction comes and comes big.

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ANDRÉS CANTERINI

Bellavista de Inversiones

Chile

If we are looking to build a diversified portfolio that seeks capital appreciation with a medium- to long-term investment horizon, Asia must have a place in it.

Not because of the current momentum in which flows have been increasing, but because of the strong pro-trade reforms we have seen in China and India in recent years.

To put EMs in context, I must discuss Latin America and point out why my flows are going to Asia when Latin America is geographically close to us and provides a certain level of comfort investing.

Asia represents everything that LatAm doesn’t have: stronger demographics, a domestic market removed from the volatility of commodities, and higher growth with limited inflation.

India is leading the pack – its macro variables are much better in relative terms than many in the EM universe.

What we are looking to do is to bet more on domestic demand than on the export sector, which is full of state energy and materials companies. Small-cap stocks in Asia have that bias, and you can find much more value there without buying the typical state energy from the big indices that large funds usually buy.

The ideal thing would be a mix of funds covering China and India with a focus on small caps. The Goldman Sachs India fund and BlackRock’s China fund are examples of that. For the Asian domestic market, the Franklin Templeton Asian Smaller Companies fund is a good choice.

These funds, which have excellent track records and give us full coverage of the region, make sense in a strategy that seeks to add value and profitability in Asia.

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View from overseas

ALAN MCGREGOR

AVC Advisory

Russia

We have certainly been allocating money to Asia – it’s an area we like long term, but of course, when you look at recent results, you’re always going to regret not having allocated more. It’s always difficult to see if we are near a short-term top, but we have a long-term perspective anyway and that’s why we like this region.

We generally allocate to larger fund houses, such as HSBC and JP Morgan. Both have very strong Asia-Pacific heritage. We believe that to be successful in any market, you need to be in the area and that’s true of both HSBC and JP Morgan. We also like the CIM High Yield Dividend fund - a smallish fund run by Asian veteran James Morton. It has paid a dividend of at least 6% for the past 16 years, and has performed pretty well so far this year, with around half the fund allocated to the twin powerhouses of Hong Kong and Singapore.

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View from overseas

MARIO CRIBARI

BlueStar Investment Managers

Switzerland

After being the market’s darlings from 1998 to 2007, EMs suffered a very harsh correction in 2008. Some of them have subsequently been labeled ‘fragile’ because of their fundamental imbalances. However, they have staged a strong comeback and are up by close to 20% on average this year.

We have been overweighting EMs since last year because we believed their fundamentals were improving, coupled with very compelling valuations. They had a lot of underperformance to catch up with. On a national level, we are invested in China, India and Vietnam. Some of the funds we hold are Avaron Emerging Europe, GAM Multistock- China Evolution, Lemanik Asian Opportunity and Schroder Asia Total Return. We believe the managers of these funds are among the best: they are consistent, with strong due diligence. We have been following them for many years.

Given the absolute return nature of the funds we manage, and having experienced strong outperformance, we are very close to taking some profits off the table, especially considering that China could be on the verge of a new downturn next year. If markets experience some kind of correction, EMs could be the first market to take profits.

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