There has been much talk recently of the threat of a global currency war, raising concerns that more countries will opt for intervention in order to regain an advantage over their trading partners. I caught up with Alan Gibbs, manager of the Waverton Asia Pacific fund at J O Hambro Investment Management to talk currencies, investing in emerging markets and opportunities in Greater China property.
Holly Cook: How does the supposed 'currency war' impact your portfolio and decision-making process?
Alan Gibbs: We feel that the 'currency war' theme is overhyped. We believe that China will continue its gradual appreciation of the CNY against a basket of currencies (read USD) at a rate of around 5% per year. Rolled up over a few years this amounts to quite a sizeable appreciation. Central bankers across the world are all, in one way or another, manipulating their currencies at present, it is not just China! Rhetoric from the US is politically motivated but China holds all the aces (and US Treasuries). Given all this, we do not see the 'currency war' as a major risk for the portfolio especially as most holdings are domestically orientated.
Cook: Global emerging markets are among the most preferred regions for global investors at present, while Japan appears to be bottom of the pile--where do you see the most opportunities?
Gibbs: Waverton Asia Pacific is an Asia ex-Japan fund so we can’t comment on Japan but we can comment on emerging markets in Asia. Whilst global emerging markets do appear to be front and centre of global investors' affections at present, this does not show up in valuations. Forward price/earnings ratios are not markedly different in Asia versus more developed markets despite the obvious disparities in growth outlook between the regions. We think this represents a very significant opportunity to buy Asian growth at reasonable valuations.
Cook: Can you please give me an example of a recent portfolio change and explain why?
Gibbs: We have recently raised our weighting to Greater China and particularly Chinese residential property developers. Greater China markets have significantly lagged their South East Asian peers year to date as investors feared for over-tightening (targeted at the property market) and a hard landing for the economy. With property price appreciation moderating over the summer and strong (but not too strong) second quarter GDP numbers, these fears should subside, resulting in a re-rating for the property sector and the region as a whole. The surprise announcement by the PBOC of an interest rate hike on October 19 underlines our view that the economy is performing well.