This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Rob Morgan and Ben Yearsley of stockbrokers Charles Stanley pick five funds to consider in 2014.
Although it was the best performing major market in 2013 Japanese equities could be re-rated further if new policies continue to achieve their objectives. In Shinzo Abe, Japan now has a Prime Minister who has the respect of both the Japanese people and his political colleagues. He has introduced much needed and radical changes, and the prospects look very promising for equity investors. GLG Japan Core Alpha (Morningstar analyst 
Gold Rated) and Jupiter Japan Income (Silver Rated) are our picks here as the managers should get the best out of this sector over the long term with their value based strategies. It has been a tough time for some more cautious strategies this year. For instance, Personal Assets Trust (PNL) managed by Sebastian Lyon has struggled largely due to exposure to gold and lack of exposure to economically sensitive areas such as financials.
However, we believe it is due a return to form. Although economic growth seems to be picking up, wage growth is non-existent meaning little upward pressure on inflation and even the risk of deflation. With its emphasis on capital preservation and mix of defensive, non-leveraged equities, index-linked bonds and gold we believe this is a fund to keep at the core of a portfolio for the long term.
In contrast to developed markets, Asia and Emerging Markets have had a disappointing 2013 but are now looking good value. Markets have been spooked by fears of the US reining in economic stimulus but we believe Asia should continue to forge its own path of growth regardless, albeit at lower levels than in the past. Notably, China and India are slowing down but there is plenty of scope for businesses to prosper in the region. We see this as an opportunity to build up exposure to the area for the next decade through funds such as Lazard Emerging Markets (Bronze Rated). In particular, I have grown more bullish on China. It didn’t experience the hard landing in 2013 that many market observers predicted. With economic growth stabilising in the 7% region Chinese demand is still having a highly beneficial effect on the global economy. So far this hasn’t done much for many local businesses as fierce competition and government interference has hampered shareholder returns.
However, authorities look to be serious about reform. The plenum in November revealed a more free-market driven economy is envisaged and this could be highly beneficial to businesses. With valuations at undemanding levels I think there is a good case to be made for Chinese equities right now despite the many risks. Aberdeen are well known for their discerning approach to investing in good quality companies throughout Asia and Emerging Markets and our pick in this volatile area is Aberdeen Global Chinese Equity (Bronze Rated).
