Mark Williams, portfolio manager of Somerset Capital Management’s Asia Income Fund and Emerging Markets Dividend Growth Fund, highlights investment opportunities in emerging markets, notably China.

Despite increasing concerns over China’s slowing economy, Mark Williams, portfolio manager at Somerset Capital Management, thinks there are still lucrative investment opportunities to be had in the region.

China’s 2023 growth outlook has been revised down from 5 per cent to 4.8 per cent, and is expected to reach 4.5 per cent in 2024. Even so, Williams thinks the country doesn’t need the huge growth it had about 10 years ago. For him, 4 or 5 per cent growth is still relatively attractive.   

Firms are still undervalued in emerging markets, compared to countries like the US where valuations are high, and there is a huge pool of companies in China which offer attractive investment opportunities, Williams said. His views have been echoed by Ronald Chan, founder and CIO of Chartwell Capital, an investment firm based in Hong Kong, who also thinks that there are hidden gems to be found in the country. See here. Nevertheless, David Bailin, chief investment officer and global head of investments at Citi Global Wealth, has made upward revisions to his US growth forecasts for 2023 and downward revisions to China, causing a reallocation in the firm’s equity positions within global markets. See here .

Williams highlighted how he identifies companies that capture the growth of the region. “That to me is the whole point of investing in emerging markets. We think there are opportunities for growth that you don’t necessarily see elsewhere in the developed world,” he told this news service in an exclusive interview. “We want to invest when the markets don’t necessarily appreciate what we see. We look for well managed companies, with real growth, and which will eventually pay dividends,” he said.

“There will be a lot of firms that don’t fit our remit. But there are niche companies that the Chinese government might want to succeed. It does want to improve the environmental impact and increase investment in renewables, for instance, and China is one of the most advanced countries in solar and electric vehicles” Williams continued.

Although the ongoing property woes pose a major challenge to Chinese growth, he doesn’t think that there will be a major financial crisis. “The companies we own are also not directly linked to any of the debt issues within the property sector,” he said.

Williams also highlighted how China’s economy was weaker for longer due to Covid-19, not least due to its zero-Covid policy, but it is now starting to come back. “When the UK came out of Covid-19, more was spent on services and that’s been an area of growth in China,” he said. “China is also trying to encourage growth. They have lowered interest rates and they will continue trying to stimulate growth which means it will pick up,” he said.

As for other jurisdictions, Williams also invests significantly in Taiwan, largely in tech firms, and thinks Brazil is an interesting market, with some good investment opportunities. He sees India as a promising market and invests in Korea, but not as much as other economies, as it tends to be more cyclical. Williams is a portfolio manager of Somerset Capital’s Asia Income Fund and Emerging Markets Dividend Growth Fund.

Somerset Capital’s Asia Income Fund
The fund aims to generate returns over the long-term via income and growth, with a concentrated portfolio of 40 to 60 well-managed companies. It has outperformed the index over a 3 and 5 year period and is also performing well so far in 2023.

The fund is heavily weighted towards China and Hong Kong (40.9 per cent), followed by Taiwan (22.8 per cent) and Korea (9.7 per cent). Top ten holdings include Taiwan Semiconductor Manufacturing Company (TSMC) as well as Taiwan’s Wistron, Koreas Samsung Electronics and Korea’s KB Financial Group. They also include China’s energy company CNOOC and Anta Sports Products. Top sectors include IT, followed by industrials, financials and consumer discretionary.  

Somerset Capital’s Emerging Markets Dividend Growth Fund
The fund aims to generate total returns over the long-term via a combination of growth and income, with a concentrated portfolio of 30 to 50 well-managed companies. Although performance was down in 2022, it has outperformed the index in 2023 and in 2021.

The fund is heavily weighted towards China (28.2 per cent), followed by Taiwan (17.7 per cent), Brazil (13.3 per cent), Korea (12.2 per cent) and India (8 per cent). Top ten holdings include Brazil’s energy company Prio SA, Taiwan Semiconductor Manufacturing Company (TSMC) and China’s manufacturing firm BYD Co as well as India’s service provider BLS International Services. Top sectors include IT, followed by financials, industrials, consumer discretionary and healthcare.  

See here another article about China’s outlook and investment opportunities in the region.