Jesper Madsen; Lead Manager of the Matthews Asia Pacific Equity Income Fund
What do you look for in terms of growth prospects and risk?
These are still growth companies—we're not looking to just milk the low-growing companies. But they are companies that are oftentimes overlooked, that may be going through a rough patch and have an earnings outlook that's a little murky. A lot of people don't like investments that don't have a clear growth strategy. We look at growth compared to yield. We also look for strong cash-flow generators. For companies in debt, their assets must be good cash generators so they're more likely to be able to pay both debt and dividends.
Let's talk about the largest industry represented in your portfolio: financials. What is your outlook for this sector?
Although there are negative head winds blowing across the globe in anything that resembles financials, this is a sector that is part of the longer-term growth story in Asia. Longer term, the broader financial sector should stand to benefit from rising household incomes and wealth creation. For instance, we have seen demand for credit grow, both in the shape of the uptake in credit cards and in mortgages.
Wealth management is an untapped area in Asia, even in developing economies like Japan, where money sits in deposits making close to zero percent. More and more, investment trusts are popping up. So people on the margin are shifting themselves into some of these. That's also why we find Japan so interesting. Domestic savers could go out and purchase a diversified basket of blue-chip Japanese corporations and make maybe 2 percent on that, compared to nothing in deposits. At some point in time, that should start to make sense. Generally, it is still the early days for the region's wealth management industry, but as people grow wealthier they are also more likely to start demanding more sophisticated wealth management products and financial advice.
