AMPÆs Karma Wilson says no to viewing markets in isolation

This is part of a mid-year AsianInvestor series on the investment outlook of fund managers with Asian equity portfolios.

Karma Wilson is the Sydney-based head of Asian equities at AMP Capital Investors. She joined the fund house in September 2006 and is responsible for the ongoing development of its pan-Asian investment capabilities as well as management of the Asian equities team. 

Wilson has managed the AMP Capital China Growth Fund, the first China A-share fund in Australia, since its inception in 2006 and has managed the AMP Capital Asian Equity Growth Fund since its inception in 2008. She began investing in Asia in 1992 and has extensive funds management experience, covering a range of global equity portfolios

The AMP Capital Investors' Asian Equities team covers China (both China mainland listed stocks and Hong Kong listed stocks), Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan and Thailand. AMP Capital Investors manages around $88.5 billion in assets worldwide.

What are the biggest opportunities that you see in the markets you are responsible for in the coming 12 months? How are you preparing to take advantage of those opportunities?

Karma Wilson

Wilson: The challenging financial conditions we have experienced over the last 18 months have changed the investment landscape considerably. Companies that were marginal players when credit conditions were easy and risk was mispriced have had to withdraw from the market. Foreign companies with big budgets to target Asian markets have had their funding curtailed. This has improved competitive conditions for natural market leaders in Asia and enabled them to consolidate their positions. The long-term investment opportunity from these stocks is compelling.

How different or similar is your 12-month investment outlook now compared to the start of this year?

At the beginning of the year the markets were dominated by uncertainty. Major global institutions appeared on the brink of failure with potentially dire ramifications for the world's markets. However, a major systemic collapse was avoided and investors have returned to equity markets. We have been surprised by the resilience of the Chinese economy and pleasantly surprised by several political developments across Asia. This has improved our outlook for the markets.

Have you made any significant changes to your asset allocation in terms of markets or sectors in the past few months?

There have been significant moves in the markets causing us to take profits in some areas like India and China. We are still very positive on these markets. We have found quite a few opportunities in smaller cap companies, which have shifted the portfolio tilt.

What are the greatest lessons you have learned from the global financial crisis and how will this affect the way you manage your portfolios?

The global financial crisis reinforced our view that you cannot view markets in isolation, they are integrally linked.

How has your view of Asian equities changed since the start of 2009 when investor sentiment was generally gloomier?

The general improvement of sentiment across Asia may ultimately be self-reinforcing. The impact that confidence has on behaviour and ultimately the economy can be powerful. We are seeing investors coming back into the stock and property markets with a consequent improvement in asset prices. This will flow on to spending which will improve the outlook for business and so on. This is very different from the environment in developed markets.

How has the swine flu affected your investments?

The swine flu pandemic has had little impact on our investments.

What are your market weightings within an Asia ex-Japan equities portfolio?

China - 29.7%
Hong Kong - 14.8%
India - 11.1%
Indonesia - 2.9%
Korea - 15.1%
Malaysia - 2.0%
Pakistan - 0%
Philippines - 1.6%
Singapore - 3.3%
Sri Lanka - 0%
Taiwan - 14.1%
Thailand - 1.8%
Vietnam - 0%

What are your favoured markets in Asia?

We are positive on markets that we believe have long-term growth prospects and are less impacted by slower global growth. These would include China, India and Indonesia.

What are the markets you are going to steer clear of in the next 12 months?

There are no markets we would completely steer clear of at the moment. We are finding good opportunities in most markets. However, Korea is a market which faces some competitive and structural challenges.

Which sectors do you expect to outperform in the next 12 months?

Domestically orientated companies in the consumer and services sectors may do well as governments focus on rebalancing growth towards these areas. Property and some diversified financials may do well on the back of global liquidity finding its way to Asia.

Which sectors do you expect to underperform?

The technology sector is one where we are very selective. Heavy industry is likely to face challenges for some time.

What are the main challenges that you expect to face in the coming 12 months?

Global investors are still quite uncertain about the likely economic outlook and hence appropriate asset allocation. The biggest challenge may be dealing with the impact of global fund flows.

What are the main risks of investing in Asia at the moment? How are you managing those risks?

The markets have had a strong run and there is a risk of prices getting ahead of fundamentals and the reasonable prospects of recovery. We manage this risk by maintaining a disciplined approach to valuation and the monitoring of our positions.