Fund Global Asia
Alex Zeeh, chief executive of SEA Asset Management, says small-cap companies with cheap valuations are the best way to access Asian growth.
A COMPANY’S STOCK may be listed in Asia, but that doesn’t mean it does the majority of its business there. Samsung is listed in Korea, but it sells its products across the world.If you want exposure to global growth, buy shares in Samsung. For exposure to what is commonly called ‘the Asian growth story ‘, it might be better to look at smaller, less globalised companies.
That’s the view of Alex Zeeh, chief executive of SEA Asset Management, a boutique asset manager based in Singapore.The firm’s two Luxembourg-domiciled funds have combined assets under management of $23 million . With such a small asset base, SEA is able to be flexible and nimble and to avoid familiar, large-cap names. He believes investors are rewarded.
In Singapore, the firm invests in companies such as 800 Super, which provides horticultural services such as trimming trees , maintaining green spaces and watering plants.”Small capitalisation, low valuation , stable growth, high dividend yield,” he says.”These are the kinds of company we buy.”
Small-cap stocks like this are appealing not only because they are exposed exclusively to Asian growth but because they are largely uncorrelated to world markets. If global investors switch to ‘risk-off’ mode, and billions are withdrawn from global equity indices, most large-cap Asian stocks fall in value.”But small – caps, which haven’t attracted so much foreign investment, and are mostly local-owned , are not affected as much,” says Zeeh.
Firms such as 800 Super offer other benefits, too. They may be supported by Singapore government policies, which, among other things , provide funding for maintenance of public spaces.
As a rule, Zeeh favours small cap investing as opposed to following the big indices.”People read about Asian growth and they pour money into MSCI Asia. It’s overcrowded. You don’t get the reward for the risk you take.”
The firm invests in bonds too, via its Asian High Yield Bond fund, and Zeeh says the firm specifically chooses to hold a high proportion of unrated bonds. The issuers tend to be small companies typically targeting only local investors and often denominating their issues in Singaporean dollars. These firms are not courting international investors and so don’t bother with the expense of gaining a credit rating.
Being unrated does not necessarily mean a bond is untrustworthy. Some unrated bonds are from established businesses with stable revenue streams. However, many of the bonds in the portfolio are high-yielding, with a higher than-average risk of default. The key, says Zeeh, is to diversify the portfolio to minimise the impact of any defaults, and to invest mainly in short duration bonds.
There are other local investment opportunities available to the nimble investor. Zeeh points to the local market for real estate investment trusts (Reits). Investing in a Reit covering warehouses in Singapore with long- term leases can realise yields of up to 10% a year, he says. Again, these small scale opportunities are typically not available to managers of large fun d s with hundreds of millions to deploy. Sometimes, small is beautiful.