bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

PATIENCE IS A VIRTUE in investing if Aberdeen Asset Management's China Opportunities Fund is any guide.

Through sticking closely to a stock-picking, value-investing style, the fund last month won the one, three and five-year prizes for China funds at this year's South China Morning Post  Fund Manager of the Year Awards.

'It boils down to the house style a lot of it,' said lead manager Flavia Cheong. 'We tend not to be momentum investors whereas quite a few of our competitors would be.

'With China it has always shown that if we kept to our style, without being diverted or distracted, that works best.'

The house style means always visiting a company and conducting independent research before making an investment.

What Ms Cheong and the Aberdeen team look for is a focused business, strong balance sheet, quality management and good corporate governance. Then the company's valuation and growth prospects go under the microscope.

That fundamental approach has ruled out jumping on bandwagons to make a fast buck or playing broad sector themes. Aberdeen has to wait for the market to come to their investments rather than the other way round.

'There are times that we feel tempted, like we should be in red chips or we should be in B shares, when they are running and they are hot,' said Ms Cheong.

'But I think it is really difficult to find someone who can time the top of the market and the bottom of the market.'

Many foreign investors have been dazzled by the opportunity of gaining access to one billion consumers and it is easy to get carried away with investing in China. But abandoning a cautious approach has not worked in the long term for either direct investors or portfolio managers.

'When you think about it how many [multinational corporations] are really making money out of the one billion consumers,' said Ms Cheong.

'The Chinese market has been open ever since Deng Xiaoping allowed foreigners to come in. But it hasn't been that easy to make money there.

'At the end of the day, China is still a developing market and [cheap] valuations still provide a cushion to stock prices.'

The China Opportunities Fund has the mandate to invest in any companies which are listed in Hong Kong or the mainland and any which have most of their operations and revenues from there.

But Ms Cheong has largely shunned mainland listed B shares, save for a small holding in Shenzhen Chiwan Petroleum which has been sold into this month's rally.

'It is hard to push yourself to buy any of those stocks because the quality is really lacking in the B-share companies,' she said.

There are problems with corporate governance, share price manipulation and liquidity of trading.

A holding in a B-share stock power company was disposed of, for example, when the firm invested some spare cash in financial institutions.

'People would buy it because it offered an alternative way into the banking sector. But what does a power company know about investing in banks?' said Ms Cheong.

She said Aberdeen would take another look at the B-share market when it had settled down following last month's move to open it to domestic investors as well as foreigners.

The result of Ms Cheong's B-share reticence is that 89.6 per cent of the fund was invested in Hong Kong-listed companies at the end of January, with just 14.7 per cent of that in the H shares of mainland firms.

As the fund is Dublin-listed, stocks which constitute more than 5 per cent cannot add up to more than 40 per cent of the fund.

'It wouldn't allow you to effectively index. We are not index followers so that is not a problem,' said Ms Cheong.

The top 10 of the fund, which has up to 30 holdings, are an eclectic mix with Hong Kong fast food chain Cafe de Coral rubbing shoulders with Asia Satellite Telecom.

That worked well last year with the fund gaining 31.41 per cent, ranking it top out of 32 funds, according to fund-tracking firm Lipper Asia. For the three years to March 9 it put on 70.48 per cent against a 21.23 per cent loss by the benchmark CLSA China World Cap Return index.

That has been achieved without the holding's star China stocks China Mobile and computer maker Legend Holdings.

Ms Cheong has just picked up her first batch of China Mobile this month after it fell to HK$35.90, within touching distance of her HK$35 trigger price for acquiring the stock.

'I think [rival China] Unicom is interesting but at the moment we do prefer Mobile over Unicom because of management quality,' she said.

'I'm not willing to pay a big premium to have exposure to the Chinese market because I don't think that is warranted. But I think the price we are looking at where it is trading at 10 to 12 times [enterprise value to gross profits] is quite reasonable, even on a regional basis when compared with other carriers.'

She is expecting to pick up more China Mobile as the counter is likely to suffer amid further volatility in global stock markets. If the stock heads back north of HK$40 it would start to look expensive again and 'I would have no problems selling it off'.

Ms Cheong's top holding is clothing retailer Giordano which has a chain of stores in the mainland as well as across the region.

She particularly likes Giordano's new joint venture with China Resources to open Bluestar Exchange, a more down-market clothing chain, with prices to match mainland pockets.

'I think that will be the earnings driver going ahead,' she said.

The fund manager is also a fan of Beijing Capital International Airport even though it has not really taken off since its flotation last year. 'We have made numerous visits with the management. There is a lot of upside in terms of earnings,' she said.

'If you went to Beijing airport not a lot of the space has been leased out, whereas it is very different in Hong Kong or Singapore. There is a lot of room for them to grow the business.'

Most importantly, the management fits Aberdeen's style of minding their own business.

'They don't punt in the stock market or look to expand into the banking sector. All they want to do is run the airport,' said Ms Cheong.

There is a quirk in the fund in that it has two Japanese electrical manufacturing companies on account of their extensive operations in the mainland, where labour is much cheaper than at home.

One of the pair is Mabouchi Motors which makes micromotors and is a rival to Hong Kong-listed Johnson Electric.

'In terms of valuation, Mabouchi is a lot less demanding. In terms of growth, the business is just as good and it is just as well run,' said Ms Cheong.

Flavia Cheong

1992:  Graduated with a masters  degree in economics from  the University of Auckland in  New Zealand.

1992:  Economist with DBS in  Singapore.

1994:  Economist with People's  Bank of China in Singapore.

1996:  Fund manager with Aber deen Asset Management.



Mainland investing calls for a steady hand 'without being diverted or distracted', believes winning fund house