Alan Gibbs at Waverton says the rally in the Asian markets is the start of a new bull phase that will last years rather than months.
The manager of the Asia Pacific fund says Asia is emerging from the downturn in an even stronger position than before.
It may surprise people to realise that Asia has not suffered a financial crisis, Gibbs says. It went into the global downturn with central banks owning about 50% of the worlds reserves; commercial banks were underleveraged, corporates had strong balance sheets and the consumer was not in debt.
Asia has emerged with a strong cash position, he adds, and the volatility has created opportunities that are second to none as stock prices fell by about 70%.
We are already beginning to see this in some of the market action. This year started off badly in emerging markets but it is turning into a better one. Asia [excluding Japan] markets are up 20-25%, while developed markets are flat or slightly up. We are beginning to see the strong fundamentals and opportunities translated into stockmarket performance.
Other factors to support Asias recovery include the increase in infrastructure activity. Gibbs visited central Chinas larger cities in March, and says all of the projects that proposed over the past two to three years were granted permission, while capital banks are now lending to project managers.
The Chinese government allocated a large chunk of the $600 billion for the Countercyclical Demand Policy, unveiled in November, to infrastructure and general development.
There has been an explosion of activity, and it is coming through in the headline figures. These projects are huge, so we wouldnt expect to see the real effect until the second or third quarter, but we are already seeing it. We suspect it is currently on the accelerating path.
To play this theme, the largest position in the fund is in West China Cement.
This is an Aim [Alternative Investment Market]-quoted company but is in the centre of operations on central China. It is fair and squarely where the action is, and demand for cement is growing exponentially in China.
A large proportion of the portfolio is invested in mainland China (44% as at March 31) as a result of his bullish views, but there are also positions in Hong Kong (20%), Australia (14%), Singapore (7%), Philippines (4%), Taiwan (2%) and Indonesia (2%). Cash is 7%.
However, the fund is highly concentrated and has no more than 35 investments at any one time.