14.09.2011

Ken Goh

Portfolio Manager

CIMB Principal Asset Management Pte. Ltd. Singapore

Boasting attractive fundamentals for investors such as more than a third of the world’s population, rapid urbanisation and growing demand, the Asia Pacific region offers fertile ground for anyone taking a long-term view of their investments. The WSF Asian Pacific Shariah Growth Fund gives investors the opportunity to take advantage of long-term healthy growth across the Asia Pacific region while complying with Shariah investment criteria.

 

IMPRESSIVE FUNDAMENTALS

The WSF Asian Pacific Shariah Growth Fund invests through shares listed on stock exchanges in the emerging and developed markets of the Asia Pacific region excluding Japan. The investment potential of these markets is underlined by their growth fundamentals. The region’s on-going structural transformation, increasing productivity and favourable policy climate will continue to support healthy growth in the long-run and the region exhibits above-average growth potential compared to the overall market.

 

The region also has other impressive key structural fundamentals. China, India and Indonesia alone have 38% of the world’s population - more than 2.6bn inhabitants – providing a catalyst for a strong future economy. Urbanisation is accelerating and with it economic growth driven by the sheer number of people with increased spending power. This rapid urbanisation will also drive greater infrastructure spending in coming years, fuel growing demands for energy, and lead to a rise in employment and higher standards of living. As well as this, China and India have become commodity consumer powerhouses while Indonesia and Australia are among the world’s largest commodity providers.

 

GROWTH STORY CONTINUES


The region’s growth story looks set to continue. Despite concerns over inflation and high interest rates, Asia remains the primary global economic driver. While the West is trying to induce inflation and growth, Asia has successfully moderated high inflation and sustained growth. However, it is not all smooth sailing. The weak USD has squeezed a fair amount from the export competitiveness of Asia, especially manufacturers who depend on Western markets. Efforts to reconfigure the export engine currently geared to the West to one that is geared for Asia are hampered by lower per capita income, supply chain hiccups arising from the Japan earthquake, and concerns on asset inflation and runaway prices.

 

THE CHINA QUESTION

China is a large part of the regional equation and it has moved to head off inflation by clamping down on spending. But there remains a big question over the property bubble and whether property prices in China are sustainable. There is no dispute that high-end property prices have qualities reminiscent of a bubble especially in Beijing, Shanghai and Shenzhen. However these cities do not represent China as a whole. There are two main factors that will support Chinese property prices. The rise of China’s property prices, though spectacular, still lags behind income growth. Although property prices have gone up 1.5 times since 1998, income has correspondingly risen four-fold over the same period. In addition, buying a property in China for speculative purposes is extremely difficult. Sales of any property development are restricted to residents in that same district, preventing non-residents from buying. Speculative fervour is further mitigated by purchases of a second property requiring a financing margin of 50%. Moreover, over half of all property transactions are conducted in cash, which is unaffected by rate hikes. Such buyers have holding power and will not be candidates for default.

 

China: Average Property Price vs. Income Per Capita (rebased to Jan 1998=100)

 

POSITIVE OUTLOOK

In light of the weakening USD, Asian authorities are facing the dilemma of a more expensive export engine and the search for an alternative model. The weakening of the USD has increased the purchasing power of Asian consumers, whose middle and upper class have extensive savings waiting to be spent. The glimmer of hope here is to tap consumer spending to create a new market for local manufacturers and reduce reliance on export markets. The investment manager’s view on Asian equities for the second half of 2011 is positive amid signs that policy priority could shift away from fighting inflation towards maintaining growth and that strong fund flows into Asian fixed income markets may spill over into regional equity markets. The manager’s stock picks remain focused on stocks which are able to meet or beat earnings expectations. Growth stocks which exhibit earnings certainty and strong growth as well as dividend yield stocks with defensive growth characteristics and sustainable cash-flow are favoured.

 

INVESTMENT MANAGER

The Fund is managed by award-winning Asian investment specialist CIMB-Principal Asset Management, part of CIMB Group, South East Asia’s fourth largest banking group. It has more than USD8bn of assets under management as of 2010 and a regionally-integrated team of 56 investment professionals across the region using their local knowledge and presence to ensure clients get the best possible service. Among its key strengths and competitive advantages are a strong Shariah portfolio management skill set and its regional expertise.

 

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