The past year will remain as one of the most difficult years we ever had to deal with highly macro driven markets. JK Capital Management thinks 2015 may be a lot more fundamental analysis driven.
“There is in China a very palpable sense of optimism floating around. Despite the economy slowing down and macro numbers all pointing to the same direction, president Xi Jinping managed to convince most Chinese that he was the right person to handle the task of reforming the economy”, highlights the firm.
“His fight against corruption is certainly his most high-profile achievement. Nobody seems to be above the law, not even Ling Jihua, the right arm of former president Hu Jintao, or Zhou Yongkang, the former Minister of Security and the first member of the Standing Committee of the Politburo to be arrested since Mao’s wife in the late seventies. His handling of difficult matters such as the growth of shadow banking and local government debt won him praise. By liberalizing interest rates for institutions while gradually opening up the capital account of China, he turned the Chinese bond market into the third largest in the world, at roughly USD5.3 trillion. Private companies like Alibaba and Tencent are now global giants in the world of e-commerce and have been allowed to grow exponentially despite the sensitive nature of anything related to the internet in China. By creating in October the Asian Infrastructure Investment Bank with 20 other countries of Asia and USD50 billion of initial capital, China set up a platform to handle some of its overcapacity issues: It will help finance the infrastructure needs of its neighbors while selling its products and expertise overseas”.
In 2015 JK Capital Management anticipates the reform of State-Owned Enterprises to become less of a concept and more of a reality. “We see the Chinese government pushing companies to become global players. The most recent example was the merger of its two largest train makers to create a global leader almost three times bigger than its closest foreign competitor, Bombardier Transportation of Canada. In the technology space, we foresee a push in Near Field Communication, as part of new technologies promotion, the technology that allows contactless micropayments through mobile phones, as well as subsidies aimed at the development of hi-tech foundries able to compete with the Taiwanese and Korean leaders. Companies like ZTE, Huawei and Lenovo will make further headways in global markets be it in telecom equipment, servers or handsets against renowned leader”s.
At a time when macro numbers are not particularly inspiring, they believe China has the appropriate leadership and the required tools to sail through this transition phase. And, summing up, in 2015, they see opportunities in companies benefitting of SOE (state-owned enterprises) reform; in the rising global leaders from China and in the companies with key technologies.
In Asia, they remain cautious about Thailand. “Despite the support given by the population to the military junta, the new government has achieved very little last year. Going forward, we believe the military government will continue to disappoint by failing to deliver the growth needed”.
In Indonesia, the newly elected president has had a strong start by implementing sensible policies such as cutting fuel subsidies and reducing the fiscal deficit while he managed to gather almost half of the parliament around him. “We believe he will keep on delivering in 2015, giving upside potential to the rupia”h.
They continue to like the Philippines’ macro picture, although we are mindful of expensive valuations in certain areas and the fact that the 2016 presidential election will start to create meaningful noise, probably leading to stock market volatility. “As for Korea, we are cautious on the domestic economy although there is enough room for fiscal and monetary stimulus. Stronger exports led by global recovery and chaebol reforms bringing higher dividend pay-outs could bring investment opportunities in Korea despite the expectation of a tepid growth for 2015”.
Taiwan and Korea are more about stock picking than about their economies. In Taiwan they are weary about the Smartphone supply chain that may be facing a tough year.
JK Capital Management is a fund management company set up in Hong Kong in 1997.
It specialises in absolute return portfolio management and invests in listed securities throughout Asia. Its geographical coverage includes China, Hong Kong, Singapore, Korea, Taiwan, Indonesia, Malaysia, Thailand and the Philippines.
As at July 2014 JK Capital management Ltd has USD 507m under management.
The company is an affiliate of La Française AM.