Asian Opportunities for Contrarian Investors

Morningstar's Peter Brunt talks to Invesco's William Lam about how contrarian investing works and what his views are on the outlook for Asian markets

Peter Brunt 7 May, 2019 | 9:30AM
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Peter Brunt: Hi and welcome to Morningstar's Investment Conference here in London. I'm Peter Brunt, and I'm joined today by William Lam, co-head of Invesco's Asian & Emerging Markets Equity Team. Good morning, William.

William Lam: Hi.

Brunt: So, today perhaps you can tell us little bit about contrarian investing and what it means to you? And maybe whether there are any nuances in investing in Asia?

Lam: Yeah, well contrarian investing is my approach and I believe it works, because I believe people overreact to bad news and that's how their brains are hardwired. So, we try to take advantage of those over reactions, look for companies trading at a significant discount to our estimate of fair value. We think those discounts arise when there has been bad news over a period of time. And then over time as that bad news dissipates and people get used to it or maybe some good news comes along, then the share price returns to fair number and that's when we'll be looking to sell.

Brunt: And in Asia, do you think that there is any differences? Maybe a lack of information availability of analysis on companies that might impact things?

Lam: I don't think there is really any difference between Asia and the rest of the world in terms of contrarian opportunities. I think, arguably there is differences in how easy it is to get information sometimes, but sometimes that actually leads to more opportunity.

Brunt: Sure. So, where are you seeing the best opportunities in Asia right now?

Lam: I think there has been some negativity about China for some time, maybe that's a lot to do with the trade war, but it's also due to a long-standing belief that the Chinese economy is sort of overheated too much lending, too much credit in the system and we've taken advantage of that negativity on a couple of occasions now. One being back in 2016, another being bit more recently at the start of this year, but maybe the trade war worries and the worries about the Chinese economy worked their height, that's dissipated somewhat already, so you know some of the ideas that we brought at the beginning of the year in China have already done quite well and we're not buying anymore at this stage. But that's still an area of focus for the fund.

Couple of other areas, one would be South Korea. We've liked South Korea for some time. It's a market that trades below book value, which is always attractive to value investor like us and we think things are changing in Korea. We think things are getting better in terms of corporate governance and we think there is actually some quite good companies in Korea as well. So, that's another area.

Final area of interest is an area where we see the people don't spend enough time looking at balance sheets, especially in Asia actually. So, that is one difference maybe between Asia and other places around the world. People in Asia, too much of the P&L relative to balance sheet and we see lots of balance sheet opportunities in Asia where there are strong balance sheets that are being underappreciated by the market.

Brunt: Brilliant. Thank you very much, William.

Lam: Thank you.

Brunt: That's us at the Morningstar Investment Conference. Thank you for watching.

This article is part of Morningstar's special report on What the Experts Say

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Peter Brunt  is a Senior Fund Analyst for Morningstar UK

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