The importance to Britain of forging trade links with emerging markets was underscored by Boris Johnson’s determination to travel to India this month (Greig Cameron writes).
In normal times, this visit would have allowed the prime minister to hail the trading opportunities available now that Britain has left the European Union. However, soaring rates of coronavirus infections in India, as well as concerns over a local variant there, have proved insurmountable. After attempts to trim both the itinerary and the size of the government entourage, the trip was cancelled yesterday morning.
Yet India’s economy — and those of many other countries in Asia — still appears likely to grow much more quickly than those in the West over the next decade. Many fund managers have extolled the virtues of the value that can be found in emerging markets.
Aberdeen Standard Asia Focus is one investment trust that has been picking stocks in this area for more than a quarter of a century. Hugh Young, the manager, has been based in Asia for decades. He has stuck to his long-held thesis of investing in companies with growth prospects, strong balance sheets and ambitious management teams. At the end of February this year, Indian firms made up 16 per cent of the trust’s portfolio, more than any other country.
That includes Affle India, a digital marketing specialist, and Aegis Logistics, which provides support to the chemicals and oil and gas sectors, which are among its top ten holdings by value. Taiwan, Thailand, Singapore and Malaysia make up the rest of the top five by country. Park Systems, the South Korean scientific instruments manufacturer, is the largest holding by value.
The shape of economic recovery around the world is hard to predict, with little certainty over how countries will deploy vaccines or will cope with any subsequent rises in coronavirus infections.
Asia Focus cites the resilience of the Chinese economy as being likely to provide strong support for its trading partners around the continent.
In an interview broadcast this month, Young declared that he did not think coronavirus would derail what he believes is likely to be a long-term bull run in Indian markets. Indeed, in his view any market showing signs of weakness at the moment should be viewed as a buying opportunity.
The trust’s portfolio spans software, technology and electronics hardware, as well as more traditional sectors, with interests in infrastructure, healthcare and consumer goods.
Its mandate is to grow capital and provide a dividend by investing in companies across Asia and Australasia — with the exception of Japan — that have a market value of up to $1.5 billion. It does not have a benchmark index, but its share price return is 74 per cent when measured over the five years to February this year.
In common with many other companies, its stock plunged in the first quarter of last year. The shares were worth more than £11 in January, but hit a trough of 739p towards the end of March. Since then the trends have mostly been upwards, with the shares closing up 10p, or 0.8 per cent, at £13.10 last night.
Research published earlier in the year by FE Analytics, the investment researcher, suggested that £1,000 placed into an ISA of the trust’s shares in 1999, when the tax-free savings accounts were established, would have been worth more than £33,000 now. That put it among the best performers of the funds covered by the researchers.
ADVICE Buy
WHY Experienced team who know the region well and should be able to find winners amongst Covid-related bumps
Whitbread
For a FTSE 100 group and Britain’s biggest hotels company, Whitbread can be surprisingly nimble (Dominic Walsh writes). While some of its budget rivals have been preoccupied with staying afloat, its own Premier Inn chain has been adjusting rapidly to the constantly changing pandemic restrictions.
One example was last week’s launch of a new television advertising campaign. The “Rest Easy” campaign is designed to help Premier Inn to win market share as it comes out of lockdown hibernation. In other words, keeping the chain one step (at least) ahead of the pack.
This strategy is classic Whitbread: keep the investment going so that as the hotel industry emerges from recession, the company is in a strong position and can hit the ground running while rivals flounder.
Not that Alison Brittain, 56, the Whitbread chief executive, has been throwing money around like confetti. The economic ravages of the past 13 months have forced her to turn off the expenditure tap and to cut costs to preserve precious cash resources. September was the low point as Whitbread announced up to 6,000 redundancies across its hotels and restaurants, 18 per cent of its workforce, amid forecasts that demand would remain subdued in the short to medium term. Less than two months later, the job losses had been pared back to 1,500, partly thanks to the extension of the furlough scheme and progress on vaccines.
This adaptability has been evident throughout Whitbread’s long history. It was founded by Samuel Whitbread as a brewery in 1742, but it sold its beer business in 1999. Today the group has more than 850 hotels in Britain, Germany and the Middle East and has about 400 Beefeater, Brewers Fayre and Table Table pub restaurants. In early 2019 it sold its Costa Coffee chain to Coca-Cola for £3.9 billion and returned £2.5 billion to shareholders. The pandemic forced it to reverse ferret, though, as it went back to shareholders to ask for £1 billion of new equity.
While international travellers remain thin on the ground, a staycation summer and a largely vaccinated population should spark a solid recovery.
ADVICE Hold
WHY Shares are underpinned by freeholds, but may pause for breath
