The market volatility is an ideal opportunity for long-term investors to pick up quality funds at lower prices. My suggestion is to try to buy on the bad days when the market's had a particularly poor showing. Movements of 2 or 3 per cent in either direction are common at present; getting in on a down day should help your long-term returns.
A region I've consistently favoured over the years is Asia. Generally speaking, it has a much younger population than the West. It is not bogged down by reliance on welfare and, with a younger populace, it doesn't have big pension problems. Indeed, because of the lack of welfare, Asian populations are big savers, particularly in home markets.
In no better place can this be seen than China. Despite turmoil elsewhere, the Chinese markets have continued to rise. In the main, this is because the Chinese have been restricted to their own market. With interest rates very low, the stock market seems a logical place to save.
However, the Chinese government has recognised that there may be a problem if they allow a bubble to form, and are beginning to relax restrictions to allow the Chinese to invest overseas. The first beneficiary of this is Hong Kong, but this theme is going to spread over Asia and then to the rest of the world.
On top of this, the Chinese government has huge cash surpluses. In the past, these have been invested in US Treasury Bonds, but they are now likely to be invested in global markets.
One fund manager who believes this presents a fantastic opportunity for Asian markets is Henrietta Luk, who runs the Melchior Asian Opportunities Fund. She was shrewd enough to realise that the relaxation in rules governing overseas investment would benefit Hong Kong, and believes it will have a major effect on other world markets. When you consider how much China has influenced the price of goods in the West, its power to influence the world economy becomes quickly apparent. Just go into any Topshop, where you can buy two or three T-shirts for a few pounds.
The Melchior Asian Opportunities fund was launched in April 2005. Luk, based in Hong Kong, has 19 years of experience – just the sort of manager I want running my money. In fact, she does manage some of it.
In the mid-1990s, she was director at Hambro Pacific Fund Management, where she ran the Hambro Smaller Asian Companies fund. After this, she became the manager and co-founder of EVA Asset Management. It's telling that when she left to join Melchior, some 90 per cent of her clients followed. They must be glad they did; the Asian Opportunities Fund has performed superbly.
The fund is a focused, high-conviction portfolio, which often leads to the portfolio looking radically different to the benchmark from an asset allocation perspective. The biggest weightings can be found in Taiwan (37.3 per cent) and Hong Kong (28.5 per cent), as these are likely to be the first beneficiaries of Chinese investment overseas. The effects can already be noted in Hong Kong's market, which recently reached another record high.
The aim of the fund is to identify undervalued, under-researched companies. Traditionally, it has been biased towards the smaller end of the medium-sized companies scale, but is now moving towards slightly larger companies. The fund is also biased towards companies that are growing rapidly. The geographical split is not predetermined; it is purely the result of stock selection.
Luk is supported in her research by an analyst, Maxine Parr, who looks at the Chinese market. The fund does not buy domestic Chinese shares, but invests via Hong Kong listings as this market is seen as more developed and stable. Luk stresses that her stock selection process is dynamic, so recurring global themes are considered, but more emphasis is placed on stock-specific ideas.
Ideas are generated from a variety of sources, including industry contacts and in-house analysis. Current themes include manufacturing, the rise in consumption and the huge amount of infrastructure development across Asia.
Luk also believes that one of the biggest factors in share performance is the ability of company management. She carries out her own analysis on management, speaking to companies and their competitors and suppliers. Being in Hong Kong helps in this.
Asia remains one of the most dynamic areas in the world. If you can take a step back from the short-term turmoil, any correction there could be an excellent buying opportunity.
Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent
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