SINGAPORE Fullerton Fund Management, a unit of Singapore state investor Temasek Holdings (Pte) Ltd TEM.UL, says progress in economic reform is encouraging it to invest more in China, and that slow progress in India is prompting it to invest less.
China has pledged to make the most sweeping economic changes in nearly three decades, which could benefit sectors such as consumer, infrastructure, insurance and clean energy, Fullerton Chief Executive Manraj Sekhon said at the Reuters Global Investment Outlook Summit on Wednesday.
In India, economic reform has been "disappointing," Sekhon said, though Fullerton is finding value in exporters such as Infosys Technologies Ltd (INFY.NS) which benefit from a weak rupee.
"We have been increasing our exposure to China and we're going to look at opportunities to continue doing that," said Sekhon, who has headed the fund since October 2011 after stints at firms including Henderson Global Investors and Invesco Asset Management.
China's reform plans are "very meaningful" and will help broaden the economy, improve productive capacity and generate more sustainable domestic demand, Sekhon said.
Fullerton has an overweight position on Chinese, Hong Kong and Taiwanese equities which make up nearly 58 percent of its Asia ex-Japan portfolio. Equities account for about half of the S$12 billion ($9.7 billion) that the fund manages.
An overweight position means investment is above the benchmark the fund uses to track performance.
Fullerton is underweight on Chinese banks because of concern about the quality of their balance sheets and their ability to increase loan books in an environment of high central bank interest rates, Sekhon said.
Parent Temasek, on the other hand, is heavily invested in Chinese banks. It owns 7.4 percent of China Construction Bank Corp (601939.SS) (0939.HK) and since last year has put about $2.4 billion into Industrial and Commercial Bank of China Ltd (601398.SS) (1398.HK).
Sekhon said Fullerton has reduced its exposure to India this year because of concern about slowing economic growth and the pace of reform.
"We have been disappointed by India, to be candid, at a macro level, by what's happened over the course of this year," he said. "We think policy in terms of restructuring the economy, in terms of energy policy, it has been disappointing."
Fullerton has moved its India equities portfolio toward more export-oriented companies, including those specializing in IT services, Sekhon said.
WHAT COULD GO WRONG?
Sekhon said the firm's Fullerton Asia Small Cap Strategy fund outperformed the market in the last one, three and five years. It has been helped by sharp gains in stocks such as Singapore offshore oilfield services provider Ezion Ltd (EZHL.SI) and Taiwanese bicycle maker Merida Industry Co Ltd (9914.TW), both of which have risen nearly four times over the past two years.
"Getting excited about a stock is easy. But the question I always ask our analysts is, 'Fine. Why shouldn't I own this, what could go wrong?' And until and unless we are comfortable with that and we have exhausted that argument, we wouldn't buy something."
Fullerton is overweight on the consumer sector, Sekhon said, citing China's Mengniu Dairy Co Ltd (2319.HK) and Indonesian retailer Matahari Department Store Tbk PT (LPPF.JK) as two of its investments.
"If you look across Asia, consumption is increasing. Demand for higher-end consumer goods is increasing. We are not even talking about the luxury end, we are just talking about, from the value end, moving up a couple of notches."
Sekhon attributed the trend to significant wage increases in Indonesia, minimum wage policies in Malaysia and Thailand, and rising wages in Singapore.
"The broad consumption theme is something we like."
($1 = 1.2439 Singapore dollars)
(Follow Reuters Summits on Twitter @Reuters_Summits; Editing by Christopher Cushing)