Gabriel Sacks, Co-manager, abrdn Asia Focus plc
Steve Davis was far from the most popular snooker player of his era. He was widely perceived as unexciting, charisma-free and even robotic – the polar opposite of Alex Higgins, the flamboyant “people’s champion”.
Higgins was mercurial. His style of play was determinedly flashy and crowd-pleasing. He would puff on cigarettes and consume copious quantities of vodka and orange when not at the table. He also liked a fight.
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By jarring contrast, Davis seldom betrayed any emotion. His play was characterised by a kind of wearisome excellence. He would dispassionately sip water on the rare occasions when his opponent got an extended turn.
The pair’s respective nicknames spoke volumes. Justifiably, Higgins was known as ‘Hurricane’. As if to underline his reputation for tedium, Davis eventually had an ironic epithet thrust on him: ‘Interesting’.
In the final reckoning, though, it is titles that count. Higgins won the World Championship twice, whereas Davis secured the crown six times – all of them in the 1980s, a period he utterly dominated.
The lesson? Even though we might find it fundamentally unappealing, “boring” can be good. There is often much to be said for consistency, reliability and even deadly-dull monotony.
This rule of thumb applies to investments. It can be notably useful in relation to emerging markets and smaller companies, both of which are routinely associated with the likelihood of rapid growth and, less enticingly, the risk of heightened volatility.
Here are three ostensibly uninspiring themes that could deliver Davis-like dependability for investors in Asian small-caps. As with the the multiple champ himself, prepare to be slightly jaded – but try to recognise the brilliance amid the banality.
Shipping
Assuming it involves no encounters with extreme weather events or pirates, transporting containers by sea is rarely thought of as unusually thrilling. Nonetheless, riding the ocean waves remains fundamental to the day-to-day functioning of international commerce.
Even in an age of tariffs and trade wars, someone has to maintain all those ships. As well as regular upkeep, vessels require repairs and, increasingly, the retrofitting of eco-friendly parts.
HD Hyundai Marine Solution – yes, with no S – operates a global network that accounts for around 50,000 purchase orders and 80,000 deliveries a year. Headquartered in South Korea, the company has distribution centres in Europe, the US and Singapore and is also working towards establishing a presence in the Middle East.
We like the company’s aftermarket business, given its recurring revenue stream in what is typically a cyclical industry. Unlike shipbuilding, it is also an asset-light operation, generating high returns and healthy cash flows. The company has an annual revenue growth target of 20%.
Banks
With many investors seeing them as cyclical, banks are not always regarded as a solid means of adding stability to a portfolio. However, we believe conservative lenders can offer good access to an economy’s growth.
Indonesia’s OCBC NISP ticks the box. It is not a market leader per se and has not grown as quickly as some of its peers, but the quality of its assets and its inherent steadiness have served it well over the course of many years.
It is worth remarking that Indonesia has experienced more than its fair share of market shocks in recent decades. They include the Asian financial crisis, terrorist attacks and the sporadic turmoil of President Suharto’s 31-year spell in office, which ended in 1998.
Operating under a number of names since its founding in the early 1940s, what is now OCBC NISP has safely navigated all of these flashpoints. In addition, Singapore’s OCBC Bank – itself renowned for its cautious outlook – has been the majority shareholder for more than 20 years.
In many Western countries, not least the UK, shopping centres appear to be a fast-dying breed. Like High Streets before them, many are fading away in the face of online retail’s relentless rise, cost-of-living issues and an uncertain business environment.
The picture in many Asian economies is strikingly different. Particularly in densely populated cities and warmer climates, the best malls are still viewed as go-to destinations – not just for shops but for restaurants, cinemas, playgrounds, gardens and other amenities.
Well-diversified tenant bases and significant scope for further development are among the principal attractions from an investment perspective. So is the prospect of inflation-protected income, which is a common feature of infrastructure-related assets.
Phoenix Mills, which builds and operates malls across India, is one of our newer holdings. It has high-quality developments in numerous top-tier cities and state capitals, as well as an impressive pipeline of projects for the years to come. It might not set pulses racing, but we believe that – like Davis in his heyday – it has what it takes to be a serial winner.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Important information
- The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
- Past performance is not a guide to future results.
- Emerging markets tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
- Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
- The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
- The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
- The Company may charge expenses to capital which may erode the capital value of the investment.
- The Company invests in smaller companies which are likely to carry a higher degree of risk than larger companies.
- Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
- There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
- As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
- The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
- Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
- Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
Other important information:
The details contained here are for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any investments or funds and does not constitute investment research, investment recommendation or investment advice in any jurisdiction. Any data contained herein which is attributed to a third party (“Third Party Data”) is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use with Aberdeen. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Aberdeen, or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.
The abrdn Asia Focus plc Key Information Document can be obtained here.
Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.
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