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Schroders Asia star: global recovery will be much weaker than expected

Schroders Asia star: global recovery will be much weaker than expected

Schroder ISF Asian Equity Yield  manager Lee King Fuei thinks that the much vaunted global economic recovery will be 'a lot weaker' in 2014 than expected.

Lee says that consequently, lower growth could mean tapering is likely to be more muted than anticipated so less likely to have such an adverse effect on Asian stock and bond markets.

The Citywire A-rated manager, who oversees $8 billion of assets and also runs the Schroder ISF Asian Total Return fund alongside Robin Parbrook, thinks much of tapering's anticipated negative effect is already priced in to both Asian bond and equity markets.

He told Citywire Global: 'The recovery will be weaker and much more sluggish in global markets than expected so I don't think tapering will be as big a factor as the market thinks.'

'Interest rates will remain lower for longer and people have been worrying about the tapering impact on Asia but it looks to be priced into asset prices and bond yields.'

Lee cites the yield on 10 year Indonesian government bonds as proof.

'In 2007 it was priced at a yield of 8.9% but it is at 8.3% today and there is a much greater carry yield on Indonesian bonds than in 2007.'

Choppy First Half

He anticipates a 'choppy' first half to 2014 for the region, which he expects to lead to a number of attractive valuation entry points for bottom up stock pickers in the second half of the year.

Hong Kong remains his largest country overweight at 30% of the $2.1 billion fund, and, within that property makes up a third of the allocation.

Lee said this area is currently undervalued and should come back into favour as economic sentiment picks up.

'Hong Kong has a strong dividend culture but is seen as interest rate sensitive. This applies to Hong Kong property but I look at price to Net Asset Value (NAV) and across the cycle a lot of these stocks trade at a 15% discount to asset value.'

'Many are currently on a 40-50% discount to NAV and if you subscribe to the view that economic growth is generally on the mend and Asia is not heading for a crisis, Hong Kong property will be a big beneficiary.'

Lack of income

China and South Korea remain significant underweights due to a lack of a dividend paying culture and his fears over an impending credit bubble in the former, but around 23% of the fund is invested in Australia.

'We like Australian firms because of the concentrated industry structures, which means just a few players in each sector can gain a strong market share and there is strong corporate governance.'

Lee is currently eyeing Australian miners as they have been cutting capex and recycling cash into share buybacks and improving their dividend culture.

'A lot of dividend focused funds will not look at commodity stocks but we are looking for the dividend payers of tomorrow, not today.'

Over three years to the end of December 2013, Lee has returned 17.6% compared to 0.2% by the average Equity - Asia Pacific Excluding Japan manager in US dollar terms.

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