Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and I'm joined today by Mark Williams to give his three stock picks. Mark is the Manager of the Liontrust Asia Income Fund.
Hello Mark.
Mark Williams: Hello.
Wall: So, what's the first stock today?
Williams: The first stock today is a Chinese company called SITC (01308) which is listed in Hong Kong as all our Chinese investments are.
Wall: And what does it do?
Williams: They are a logistics company, and they are unique in that they have not only the overlands, the last mile for delivering goods, but also the container services. So intra-Asia amongst the larger Asia sphere. If you want to export from China or import into China from another country, you can use them all the way along the chain.
Wall: And for you why is it a compelling investment?
Williams: It's compelling investment because we still see Asia as a source of growth and so what we are looking for is companies that pay out dividends, but will grow those over time at relatively good valuations. And SITC has the advantage, in that the intra-Asian trade is doing fairly well.
So, whilst the rest of the world, we don’t think it’s a disaster, but it's not very exciting. We are not seeing huge growth coming from the U.S. or huge growth coming from Europe. Within Asia you've still got 6%, 6.5% coming from China slightly less from some of the other countries and they are dealing more with each other and this is going to be the company that benefits from that part of the overall environment.
Wall: And what's the second stock pick?
Williams: The second stock pick would be a Korean company called LG Chemical (051915).
Wall: And what does that do?
Williams: They are a petrochemical company. They are diversified and they have both the feedstock for the petrochemicals all the way down to the end product. And also diversified horizontally and they have a large number of end products from household down to more industrial factors. And it's also got a number of other arms, but one of them that’s really interesting is the battery side of things.
So, as you are getting increased use either just through smaller electronic goods such as mobile phones or more interestingly in things like cars, they should be a big beneficiary of that. And because that part of the business has been invested in and has only just started to approach profitability you are almost investing in that for free at a time when the petrochemical side equally is doing very well with good margins there which, with ongoing and again relatively low global growth, seems likely to stay for a while.
Wall: Sounds like quite a product diversified company in terms of revenues, is it globally diversified as well.
Williams: Yes, ultimately particularly the petrochemicals which at the moment is the majority of the earnings as well as over two-thirds of the actual revenues that is going to be subject to international markets and global growth.
Wall: And what about the third stock pick.
Williams: And the third stock pick, that I'd chose today would be China State Construction International (03311).
Wall: And what do they do?
Williams: They are a Chinese company again listed in Hong Kong as all our Chinese exposure is at the moment. And they are going to be one of the beneficiaries of China state spending on infrastructure. And whilst we want to see China's growth slow down, we think it's been growing too fast in an inefficient way backed by debt in areas that you don’t really want to see growth. We think there is a long-term potential for lots of relatively useful infrastructure spending to be made.
And whilst the government would like to see, the Chinese government would like to see certain parts of the economy slow down, they equally want to continue growth in certain areas and are willing to back or continue to have public private partnership investment in infrastructure projects and China State Constructions should be one of the beneficiaries of this.
Wall: Infrastructure spend in China was one of the things that drove commodity prices so high a few years ago, of course they have now come off, because supposedly there was less demand for infrastructure in China. Is that sort of structural story turning around again?
Williams: I don’t have a very firm view on commodities, I think the big commodity producers are likely to do well over the longer term. A lot of the commodity demand came from the housing market as well and the Chinese government is very actively trying to stop or reduce the housing bubble if such a thing has actually appeared.
So that side of it they don’t want the same sort of growth the same sort of demand as they did historically. And equally at the time when you saw these commodities – everyone was talking about the mega cycle. That was a time of great global growth and so yes China is growing but its growing at about half the pace that it was in the run up to that boom. And the infrastructure overall though it’s a positive, it's not the same scale as it was historically. So, we'd rather go for the people where they are going to be a beneficiary of the actual infrastructure spending itself rather than the secondary impact which will be the commodity demand.
Wall: Mark thank you very much.
Williams: It's a pleasure, thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
