Liontrust Asian Income to favour China and Indonesia on launch
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The forthcoming Liontrust Asian Income fund is likely to be overweight China and Indonesia on its launch later in the year, manager Mark Williams has revealed.
Mark Williams
However, Williams - who joined Liontrust after it acquired Occam in August last year - says the portfolio will generally avoid India and Korea.
The fund, which launches on March 5, will target a prospective yield of about 10% over the MSCI All Country Asia ex-Japan index. If the fund was launched today it would yield about 5%, compared with the index’s 3.8%.
“There is definitely an improvement in terms of Asia as a whole of seeking to reward shareholders,” the manager says.
“There is a greater opportunity for them to do so in a large number of areas because they are not going through the same massive, aggressive cap-ex they did previously and, where they do have higher levels of cash, they’re beginning to have a greater acceptance that paying some of that back to shareholders is a good thing.”
Williams says the current model portfolio features an overweight towards China. “On China, we’re increasingly positive. There is an ongoing likelihood there will be some form of easing within China,” he explains.
China Communication Construction is a holding that will allow the fund to play the infrastructure improvement projects of the world’s second-largest economy, while GOME Electrical Appliances targets the rise of the Chinese consumer.
Williams adds that he is “not as pessimistic as some” on banking sector issues such as non-performing loans, as evidenced by an allocation to Bank of China.
“My view is that the government has the ability to stave this off: you have increasing tax collection and they’re moving towards allowing local governments to issue bonds.”
The manager is also positive on Indonesia, due to the country’s efforts in tackling inflation and hopes of sustainable growth.
“It’s got significantly higher interest rates which it now can reduce should it need to in any difficult times,” he says. “At the same time, there are structural changes within Indonesia that are increasing the long-term growth prospects for the economy as a whole.”
About 6% of the Liontrust Asian Income fund’s model portfolio is in Indonesia, holding three companies including diversified conglomerate Astra International. “We would have more within the country, but for the lack of liquidity in the market,” Williams adds.
However, Williams is broadly negative on equity income investment in India - with a 0% weighting in the model portfolio. The manager says that, aside from the fact India is typically low-yielding, the conditions in the country are less attractive than those seen in Indonesia.
“India is in a very different position in that it’s got both current account and government deficits, with government deficits at local and national levels. That means it’s going to be very hard for India to reduce interest rates,” he explains.
“Beyond that there are other structural issues in India, either due to corruption or due to the necessary import of oil.”
Furthermore, Williams says the fund is likely to hold “almost nothing” in Korea, due to its low-yield environment. The manager also notes that the country’s businesses will suffer from falling export demand coming out of the US and the eurozone.
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