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Manager of the Gartmore Pacific Opportunities Fund, Jan de Bruijn, discusses the region’s investment opportunities.

Some may predict the imminent bursting of the Chinese ‘bubble’, but there is more to Asia than simply China, insists Jan de Bruijn, manager of the Gartmore Pacific Opportunities Fund. While he believes the Chinese government has been making the right moves since the financial crisis struck, he sees many attractive opportunities elsewhere in the Pacific region.

Jan joined Gartmore in January as Head of Asian Equities, adding strength and depth to the Global Emerging Markets team. He was previously at Threadneedle, where he managed Asian long-only and institutional strategies, as well as launching their Asian hedge fund.

He has had an active five months since taking over management of the Fund in February. He has switched the Fund over from a quantitative to an active strategy, cutting the number of holdings from 150 to about 60, taking country and sector bets. The Fund embraces developed Asian economies – Australia, Singapore and South Korea – as well as developing ones, and he is impressed by the financial strength of the region as a whole.

Jan’s core holdings now reflect the themes that he believes will drive Asian economies and their stock markets over the next decade. For example, in Asia’s developing economies changing demographics are driving the growth of the consumer class, with greater demand for health care, insurance-related products and financial services, as well as the continued need to invest in infrastructure.

His largest overweight to the benchmark is in Indonesia, where he thinks the government has done a good job of managing the economy since the Asian crisis of 1997. “It has taken over from China as the low-cost manufacturing centre – even Chinese companies are relocating there.”

Jan is also keen on some of the more developed Asian economies like Australia, South Korea and Singapore. While Australia itself is not in his benchmark, he holds two of its biggest companies – mining groups BHP Billiton and Rio Tinto. That’s because he views commodities as an indirect way of profiting from the economic growth, and increased infrastructure spending, across Asia.

While many economies in the region are largely dependent on China for their own growth, South Korea and Singapore have well established industries like financial services, electronics and automobiles, which rely far more on the west for growth.

“Car makers Hyundai are gaining market share in the US, as well as gaining a reputation for quality, previously held by the Japanese,” Jan points out.

Most of his Gartmore portfolio is invested in the kind of companies which will benefit from these growth trends – including Samsung Electronics and the China Development Bank. But he also devotes a portion of the portfolio – currently around 8%, although it can be as high as 20% – to what he describes as more short term, tactical ideas.

“Asia is prone to a lot of market noise, moving with the slightest bit of news,” says Jan. “So I use my asset allocation to invest in stocks that do not necessarily fit with my strategic plays, but are more cyclical short term bets for, say, six months or a year. These allow me to take advantage of this news flow without steering the Fund away from the core themes.”

Among the current short term bets are companies involved in the production of DRAM (dynamic random access memory) and NAND (a type of flash memory) computer chips. These stocks are benefiting from the success of Apple’s iPad, which may encourage other manufacturers to develop similar products. The credit crunch may have deterred companies from replacing their PCs over the past couple of years. However, now, as many are starting to update, sales for these components is rising, and will be sustained for at least the next year as the backlog of demand clears.

This section of the portfolio has been particularly important this year, when short term news flow has muddied the water of longer term market themes. “There is considerable uncertainty over the outlook in Europe and further afield. Just look at the US, where economic statistics can seem good one week then bad the next, creating ripples across the Asian markets. So investors have been reluctant to take a definite stance.”

He expects that uncertainty to continue for the next year or so and accepts that Asian companies will not be completely immune to any further economic shocks in Europe or the US. However, he believes there is an element of ‘decoupling’ between economies in Asia and the rest of the world.

“Asian economies are becoming increasingly self-sustaining as they grow. The rise in the consumer class will allow Asian developing economies to be less reliant on exports ­– but that is a long term trend.”

Jan thinks the biggest difference between Asia and the west is in their financial health. While many western economies and many of their companies are burdened with large debts, Asian governments and companies have strong balance sheets and are well financed, a legacy of the massive restructuring in the wake of the 1997 currency crisis. “That,” he says, “sets them in good stead to withstand further market shocks.”

He believes that getting exposure to superior Asian growth isn’t as straightforward as buying into western companies which do a lot of their business there. “The balance of power is shifting; Asian economies are also changing and beginning to compete in ways that haven’t been thought through.” As consumerism booms, ‘buying local’ is a developing theme. Jan cites the example of Ports Design, a Chinese fashion designer which many consumers now prefer to European brands like Louis Vuitton.

Heather Connon has been a financial journalist for 25 years and has written for a range of publications including The Observer, Money Observer, The Guardian and The Independent.

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The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance is not a guide to future performance. Please ensure investors read the Simplified Prospectus before investing. The Fund can invest in smaller companies which can be more risky than investing in larger companies due to lack of liquidity and increased volatility. Emerging markets tend to be more volatile than more established stock markets and therefore your money is at greater risk. Other risk factors such as political and economic conditions should also be considered. Funds investing in overseas securities are exposed to and can hold currencies other than sterling. As a result, exchange rate movements may cause the value of investments to decrease or increase. All opinions and estimates constitute the Fund managers judgement as of 30 June 2010 and are subject to change without notice. The views expressed must not be taken as an offer to buy or sell units or shares in the markets mentioned. These views are provided for information purposes only.

• This entry was posted on: Wednesday, 30 June 2010 10:30 BST
• Filed under: News
• Tags: Gartmore Pacific Opportunities Fund, Jan de Bruijn, News
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