The Asian Century
In this ‘Asian century’, a pan-Asian portfolio has real
advantages over a more narrow regional approach.
The Japanese market offers considerable value, as well
as some world-leading companies, while the rest of the
Asia-Pacific region provides a startling and diverse
array of growth opportunities.
The combination of developed and
developing markets entailed by a pan-
Asian approach is also highly attractive,
and the inclusion of Japan allows access to a
broader range of companies, as well as providing
effective diversification of risk.
That said, a benchmark that strictly adheres
to weighting by market capitalisation would
force a fund such as our Pacific Trust to have a heavy dependence on Japan.
The Tokyo Stock Exchange is the world’s thirdlargest
by market cap italisation, after only the
New York Stock Exchange and the Nasdaq. And
over the past 20 years, Japan has significantly
underperformed the rest of Asia.
When Martin Currie Pacific Trust launched
in 1985, Japan represented around 70% of
Asia’s market capitalisation. In recognition of
the stronger growth that the rest of Asia was
experiencing, the Trust’s board established a
fixed benchmark weighting of 40% for Japan.
This gave the manager the ability to exploit the
potential opportunities across the region without
being tied too closely to the fortunes of the
Tokyo Stock Exchange. Then, in June 2008, the
board removed the fixed weighting to Japan and
adopted the MSCI AC Asia Pacific index as the
benchmark. This gave a free-float weighting of
46% to Japan, simplifying the measurement of
performance and aligning the Trust’s benchmark
with that of its competitors.
Today, Japan’s free-float weighting in the
AC Asia Pacific index has fallen to less than
40%. Although Japan currently offers striking value, Asia’s higher-growth markets are likely
to offer a wider range of opportunities in the
years ahead. The case for continuing to invest in
Japan is compelling, but we believe that a lower
fixed weighting will better reflect the long-term
opportunities in the whole of Asia.
For that reason, the Trust’s board has
retained the MSCI AC Asia Pacific index as the
benchmark, but has fixed the Japan element at
25%, plus or minus 15%. This means that I, as
the new manager of the Trust, have the flexibility
to maintain the Japanese portion of the portfolio
at between 10% and 40% of the total. At the
same time, we have reduced the overall stock list
to 55–75 stocks – lower than typical 90 stocks in
which the Trust invested previously. This more
focused approach allows us to include only our
highest-conviction ideas. And although we will
concentrate on achieving capital growth, we will
also monitor the growing availability of income
This repositioning allows our shareholders
to derive the maximum benefit from Asia’s
stockmarkets – from the highly developed
markets of Japan and Australia to the emerging
giants of India and China; from the technological
powerhouses of Korea and Taiwan to the rising
stars of Southeast Asia. It’s this diversity that
makes pan-Asian equities such an attractive
This article is intended for investors in the UK and is for
information only. It does not represent an inducement
to buy or sell investments and does not constitute
Your attention is drawn to the risk warnings, and in particular those pertaining to the risks of investment with exposure to gearing and single country markets. These can be found on the trust’s website at www.martincurriepacific.com under the ‘regulatory information’ section. Martin Currie Investment Management Ltd is authorised and regulated by the Financial Services Authority and is a member of the Investment Management Association.
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