Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and here with me today to give his three sector picks is Jason Pidcock, Manager of the Jupiter Asian Income Fund.
Hi Jason.
Jason Pidcock: Good morning, Emma.
Wall: So what's the first sector you'd like to highlight today?
Pidcock: Tourism. This is a very exciting growth area in Asia. Mobility of people across the region is improving, particularly from China, as Chinese people are allowed to travel more freely than before that they are showing willingness and they have more money, more disposable income so they are able to travel.
Initially, they were going to places like Hong Kong and Macau. It was close. They had an affinity to these city states, but now they are going further afield to Southeast Asia, and actually to Australia. And Chinese tourist growth to Australia over the last year has been very high, sort of running at 20%-30% growth levels, and we do think that will continue. So the way to play this sector could be via airports or shopping centers that are well-located where tourists go. I think this is going to be a growth story for many years to come.
Wall: Something that have caused the luxury high end European retail, as have known about for quite some time, the power of the sort of Chinese pound, but now you say actually they are travelling not just to Europe and not just to those sort of Chinese tourist destinations but across the Asia region.
Pidcock: Absolutely and its mass tourism, so you're right. The high end tourists they were noticed first and the brand companies tapped into those, but now you're seeing mass tourism. They are not just going on package tours, people are going, they are finding their own way around.
The shopping centers are really noticing it, selling basic products, not – doesn't have to be luxury products, but it's just that increased footfall which really helps. And for an airport, the number of people passing through, that simply means they get more money per passenger plus their retail offerings within the airport itself.
Wall: What's the second sector today?
Pidcock: Second sector will be healthcare. Again, domestic consumption across Asia is very, very strong. There is also an element of healthcare tourism, as people flock to hospitals in Southeast Asia and elsewhere where the healthcare is very good and there is a cost advantage to maybe their home countries.
So we particularly like the hospital managers as opposed to pharmaceuticals companies or biotech, because we think the growth rate is going to be quite steady for a number of these companies. There are high barriers to entry. You know, patients have to have trust in hospital, the facilities that they have, the doctors and surgeons that are able to be attracted, the quality of the nurses, et cetera. But there are some very well-managed companies in this sector in Asia now.
Wall: That sort of investment in the developed world would be grouped under infrastructure, which is sort of low growth, but kicking off an income. But you're saying in this part of the world, I presume it's growth as well as income.
Pidcock: Definitely growth, because of demographics, populations. They are growing, but they are also aging, and people are living longer and they have more money. So they live with diseases for longer, but they have money to be able to treat them. Government provision of healthcare is growing at a slower pace and the government is quite happy for the private sector to basically take on this burden if you like or all the cost and so when companies invest in hospitals, they often get pretty good utilization of them. I think this is an area that works better in Asia than many parts of the world and that's why you get healthcare tourists coming into Asia from elsewhere in the world.
Wall: What's the third and final sector?
Pidcock: The third sector, some may be surprised to hear this. This is actually property.
Wall: There is no property bubble that we should be wary about?
Pidcock: There are always pockets of bubbles. There are always cities where there has been too much development and too much leverage taken on. It's less the development side that I'm interested in, it's more the landlords and I'm quite wary about property in China, so I'm not going to be investing in Chinese property companies. I think Hong Kong is going to struggle this year.
I think if the Hong Kong dollar peg against the U.S. dollar remains, but if there are deflationary forces in that country, then property will take the brunt and probably prices will fall. But elsewhere in the region, there are a lot of real estate investment trusts, which now look very good value, the share prices have some off quite a bit over the last couple of years, really since May 2013, they have been hit hard.
Now the dividend yields are very high. They look attractive against local bond yields, and even if you accept, they are going to have a low growth that they are not going to be able to put up rental costs for some time. I think the quality of the assets, the fact that they have low gearing, the fact they have high dividend yields makes them very appealing.
Wall: Jason, thank you very much.
Pidcock: Thank you, Emma.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
Jupiter Asian Income fund will be launched next month. Jason formerly managed the Newton Asian Income fund
