e-fundresearch.com: What are your personal lessons learned from 2015 market developments and the volatile market start of 2016?
"Every year, I am reminded of the importance of remaining: focused, vigilant, and hungry."
Hyung Jin Lee: Every year is challenging and different in its own way. I very much enjoy these challenges and am always learning from them. I see no big changes to my own investment style or philosophy. Every year, I am reminded of the importance of remaining: focused, vigilant, and hungry. As always, it is important to keep our focus on long-term fundamentals and the core investment strategy of sustainable growth at reasonable price even amid market volatility such as now. However, I think it also important to remain open-minded and attuned to changing fundamentals in economies, sectors, and companies.
e-fundresearch.com: How would you describe your investment strategy in one sentence?
Hyung Jin Lee: Bottom-up and research-centric, our investment strategy is to identify and invest in quality, sustainable growth companies at discounted valuations to their long-term value.
e-fundresearch.com: To what extent has your strategy been able to benefit from last year's market environment and which particular investment themes have delivered the strongest performance contribution?
Hyung Jin Lee: We believe that our investment strategy will do well over the long-term in most market environments. We identify strong, sustainable growth companies trading at attractive valuations. This has driven our performance over the last year and we hope/expect that this will continued to be the case. These types of companies benefit from a myriad of drivers including such examples as: changing consumption patterns in China/Asia (such as cosmetics), continued demand due to the rise of “clean disruption” (such as EVs), and changing global technologies (such as the growth of ADAS)
The strategy maintains its key focus on long-term quality growth names such as beneficiaries of Asia’s long-term domestic demand growth, global economic recovery, and rising global brands. Our bottom-up research process and tools have and are attuned to identifying such growth companies and niches that will benefit from these types of segments.
e-fundresearch.com: Why should investors consider an increase in allocation to your strategy in the current market environment? Why is it time for asset allocators to put increased focus on Asia Equities?
"Nascent bubbles or inflated pricing caused by low interest rates and easy money has been rife throughout markets from property to commodities."
Hyung Jin Lee: We believe that equity investment in Asia presents investors with a unique and very attractive risk / return profile over the long-term. Given recent turbulence in global financial markets and economies going all the way back to the Global Financial Crisis, true growth (i.e., secular growth vs artificially created growth via stimulus, quantitative easing, etc.) has become harder to find and when found, has become more “valuable”. Nascent bubbles or inflated pricing caused by low interest rates and easy money has been rife throughout markets from property to commodities. We believe that as global economies and financial markets normalize, economies, markets and companies that are exposed to real, fundamental growth trajectories will be even more highlighted. In this regard, we feel that Asia will offer strong long-term returns for investors in part due to the following:
• Higher inherent and sustainable growth: unlike other regions where much of the growth depends on asset or commodity prices, Asian growth is more “home-grown” and therefore more sustainable with less volatility
• Better fundamentals: many Asian countries (having learned their lesson from the Asia financial crisis) have large current account surpluses and strong fiscal budgets. This should provide a safer “umbrella” for corporates to grow beneath. Valuations remain supportive and at “crisis” levels in some cases.
• We feel that Asia will be able to achieve higher growth over the long-term versus global growth and perhaps, as importantly, more sustainable, stable growth versus many other regions
• We feel that certain sectors / segments will provide higher growth over the long-term than the Asian average
• We feel that certain companies will be able to provide higher growth over the long-term than their sector/segment average.
• We feel confident in our ability to identify and exploit these growth companies and growth niches
e-fundresearch.com: What is the most important advice, foreign investors have to keep in mind when entering into Asian equity markets?
"If one is looking for long-term, more sustainable growth, then Asia could be a very strong candidate for investment."
Hyung Jin Lee: One important factor to consider—especially amid the recent volatility in global financial markets—is the time horizon of the investment and the ultimate investment goals. If one is looking for long-term, more sustainable growth, then Asia could be a very strong candidate for investment. As noted before, Asia has its own internal growth drivers and strong fundamentals both on country level and corporate levels. The basis of Asia’s growth can be seen to be more genuine secular growth in line with the fast growth of economies and consumption. Barings’ investment strategy is well equipped and positioned to capture this sustainable growth.
e-fundresearch.com: With regards to the new year: How optimistic is your view into the future and what obstacles and challenges will your strategy need to overcome in 2016?
"(...) we believe there will be key areas or “niches” of growth"
Hyung Jin Lee: As always, our focus will be in identifying companies with strong growth outlooks and solid fundamentals. We remain very comfortable with Asia’s long-term growth trajectory and especially that of our holdings in the fund. Risk factors, both global and intra-regional, remain. One key factor will be China’s growth outlook as a decelerating economy and government efforts to ameliorate structural issues continue to impact equity markets. Lower commodity prices and the prospect of higher interest rates in developed markets such as the US will also be important. Despite these variables, Asia remains well positioned in terms of its long-term, domestic driven growth outlook as well as the gradual recovery in global demand that has been progressing. We note that market volatility often provide opportunities for long-term investors. Moreover, we believe there will be key areas or “niches” of growth benefitting from changing growth dynamics that will outpace overall growth. Overall, Asian markets seem to be on more resilient footing in terms of both corporate fundamentals and economic outlook in relation to other global regions and to its own history.
