Chuk Wong, vice-president and global equity manager at Toronto-based Goodman & Co. Investment Counsel Ltd., is bullish on China.
"The Chinese economy is doing much better than expected, despite the global recession," he says. "Over the last three months, pundits have been increasing their growth forecasts." Their current consensus expectation is GDP growth of 8% in 2009.
By contrast, the outlook for global economic growth has dimmed, he says, with the World Bank downgrading its estimate to a negative 2.9% for 2009, from its previous negative 1.7% forecast.
Wong's investment style is bottom-up and value-driven, but he does pay considerable attention to the macroeconomic picture of each country and region.
While enthusiastic about China's prospects, Wong cautions that in the shorter term the equity market is not cheap, as evidenced by the rebound in the stocks of many of the leading companies listed on Hong Kong. "It has staged a meaningful recovery since last October," he says.
China, he notes, currently trades at 15.4 times projected earnings for 2009, a valuation that is in line with that of the United States, which trades at a price-earnings multiple of 15.3 times.
European stocks are relatively cheaper, with a multiple of 12.7 times. "Europe is a stock picker's paradise. There are so many world-class companies, particularly among the mid-caps," Wong says.
Goodman & Co. manages the Dynamic family of funds, and Wong is responsible for managing about $900 million in assets. He is the lead manager of the 24-year-old Dynamic Global Value and its corporate-class version Dynamic Global Value Class . He also manages Dynamic Far East Value , Dynamic EAFE Value Class and Dynamic European Value .
Dynamic Global Value, which has assets of $650 million, holds some 18% in cash. Wong says the cash reserve is "an indication that I am concerned about the possibility of a correction in the U.S. equity market which would spill over into other stock markets."
The remainder of this all-cap fund, which currently holds 45 names, is invested in "non-defensive" companies that are leaders in their fields, with an emphasis on those benefitting from "high-growth emerging economies."
When it comes to sectors, some 26% of Dynamic Global Value is in energy and materials companies. This "is an indirect way of investing in the growth in key emerging economies," Wong says.
Geographically, Asia ex-Japan represents 36% of the global fund, with China constituting a third of this portion of the portfolio. Another major weighting is Europe at 19%. The fund holds only 8% in the United States, a significant underweight position. "I will put more money to work in the United States, once it is clear that the high debt loads at all levels of the economy are being reduced," says Wong.
In Asia, Wong sees a silver lining in the crisis in the global auto parts and auto market. The industry's woes created an opportunity for him to invest in a leading South Korean auto parts manufacturer with a global reach, Hyundai Mobis Co. Ltd. "It is one of the few companies in this industry to be growing its sales," he says.
This company, an affiliate of the Hyundai-Kia Automotive Group, makes parts for Hyundai and Kia vehicles. "The Hyundai-Kia Group is doing well in China, which has recently overtaken the United States as the world's largest auto market," Wong says. The stock trades at eight times the earnings-per-share (EPS) estimates for 2009, "which is inexpensive."
Indonesia, says Wong, is also worthy of investor attention. "Indeed, major investment bank Morgan Stanley recently highlighted Indonesia as an important emerging growth story."
Indonesia has the second highest per capita GDP growth after China, along with favourable demographics. "The median age of its population is 25, compared with 28 for India and 34 for China," says Wong. Also, the population has a literacy rate of 94%. Indonesia is rich in natural resources -- thermal coal, natural gas, nickel and palm oil.
A major Indonesian mining company that Wong added to the global portfolio, when the stock came under pressure along with other global natural resource stocks, is Jakarta-listed PT Bumi Resources Terbuka.
"This is the leading thermal coal producer in Asia, and thermal coal is still widely in use," says Wong. He bought the stock when it was trading at two times forward earnings. It has risen sharply since and now trades at eight times, "but I still like it at this valuation level."
An Asian holding that Wong has taken profits on is Hong Kong-listed Shimao Property Holdings Ltd., which is engaged in residential real-estate development in China. "The Chinese government's stimulus package has boosted consumer confidence and helped to revive the residential real-estate market. The stock has done well and I trimmed my holding in it," he says.
Turning to Europe, Wong notes that the largest equity weighting in Dynamic Global Value is Germany's Vossloh A.G., a mid-cap company that is one of the world's largest manufacturers of railway fastening and switching systems.
"Vossloh is an infrastructure story," says Wong. "The company recently won a mega contract from China to provide rail fastener systems for its Beijing-to-Shanghai high-speed rail link." Listed in Frankfurt, the stock traded recently at 11 times EPS estimates for 2009. "The company is under-recognized by investors," he concludes.
Wong recently established a position in Koninklijke Vopak N.V., which is listed in Amsterdam and is the world's largest independent tank terminal operator specializing in the storage and handling of liquid and gaseous chemical and oil products.
"This is another infrastructure play; the company is benefitting from the outsourcing of this service by oil and chemical producers, which form the bulk of its customers." The stock trades at 10 times 2009 EPS estimates. "It is another under-recognized industry leader," Wong says.