Hugh Young still backing India's '10% growth' potential

SINGAPORE: Three years on from the post-Lehman market low, the investment story in Asia doesn't look that different now to the way it did then, says star fund manager Hugh Young.

In the week that Aberdeen joined the FTSE 100 London stock market index, the manager of the Aberdeen Global Asia Pacific equity and Indian equity funds told Citywire in Singapore that he remains an India bull and a qualified China bear.
Young has been consistent in his views on these economies. Returning to familiar ground he said he still preferred India to China.
'The government is hopeless but it's got some great companies - the Indian Unilever and GlaxoSmithKline, and then some of the home grown companies.'
While he concedes that India is one of the more expensive markets in the region, he is still excited by its growth potential.
'It could be growing at ten per cent compound as an economy. It's currently growing at around five per cent - the difference is corruption and lack of competency and efficiency.'
There are plenty of companies Young, who is A-rated by Citywire, is avoiding in India, where he has been stung by corporate corruption in the past.
And the rumours that constantly swirl round the Indian market can generate a lot of time-consuming extra work. Young said he gets lots of 'poison pen' letters, alleging irregularities at one company or another. 'India talks, unlike China,' he said.
Among the companies he doesn't like is the Reliance group, controlled by the Ambani family.

In China, meanwhile, he is bullish on the economy but he still can't find good companies to invest in. He expects to see some bad debts arising from the proliferation of infrastructure projects, but says the country can ride that out.
'But finding decent, sensible businesses run by respectable people - that's where we're bearish.' Too often, he says, the outside shareholder comes a distant second to the interests of the country.
Young is a long term investor in PetroChina and China Mobile, but he stresses: 'there are very few proper, really nice companies.'

He added only two new holdings in his Asia Pacific equity fund last year. 'One was HSBC at the beginning of the year, that was a slightly early one, but analytically we think that's right. We're not good at timing our purchases. We bought back into it because it was returning to its roots in Asia.'
The other was Keppel Corporation in Singapore, one of the local shipyards which is building rigs for Brazil.
'Three years ago was a spectacle for Asia: The spectre was the Asian crisis 15 years ago.' And with Europe still mired in its sovereign debt crisis, Young doesn't see Asia suffering any significant fallout.
'In this part of the world, everyone's got a strong balance sheet. Governments in pan-Asia haven't really done anything daft. The western crisis was a good warning to Asia, and a reminder to keep on the straight and narrow.'

In the Equity Asia Pacific Ex Japan sector covered by Citywire's analysis Young has returned 110.2% over three years to the end of Febraury, this while the average manager returned 85.1%.
In the Equity India sector, over the same period he has returned 124% against a gain of 86.5% from the average manager.

(Angus Foote - Citywire - 09/03/12)