A number of smaller companies are poised to rise with an ever-increasing middle class in fast-growing Asian markets. John Wong, who manages two Asia-focused funds for Oberweis, describes how he approaches the region in today’s interview.
Kate Stalter: Today our topic is opportunities for investing in Asia, with John Wong. He’s the manager of the Oberweis Asia Opportunities Fund (OBAOX).
John, can you start out today by telling our audience a bit about the fund’s objective?
John Wong: At Oberweis Asset Management, we have an office in Hong Kong and we have two funds that are managed out of Hong Kong: The Oberweis Asia Opportunities Fund (OBAOX), and the Oberweis China Opportunities Fund (OBCHX). I am responsible for both.
Our fund focus is primarily on discovering and investing in small emerging companies in Asia. So we look for companies that are on the cusp of transforming themselves to become market leaders in their respective fields in their markets.
Typically, we look for companies that are not owned by the state or by the government, and we prefer to find companies where the founders or the management have significant stake in the company. We believe that if they have a significant stake in the company, interests should be aligned with shareholders.
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Kate Stalter: Which nations are you investing in? You mentioned that the one fund was specific to China, but your fund has a little broader mandate than that?
John Wong: Yes, the Asia Opportunities Fund has a mandate to invest in pretty much any market across Asia, from Japan and Korea to China, Southeast Asia, and the Indian subcontinent.
Kate Stalter: You mentioned that these are smaller companies, for the most part, that you’re looking for?
John Wong: Yes, we typically look for companies with market under about $2 billion.
Kate Stalter: One thing that I was interested in talking to you about, with regards to a lot of the US-listed Chinese ADRs over the past year or so: As you’re well aware, they’ve come under some investigation for accounting practices, and some have been delisted in the US.
How should investors differentiate between what you are doing and some of these companies that turned out to be more suspect in the US?
John Wong: Well, our approach is bottom-up fundamental research, so when we invest in a company, we go talk to the management, we talk to the suppliers, we talk to competitors, and we talk to the customers. So we make sure we do our homework, we make sure we are comfortable with the management, we make sure we are comfortable with the companies, before we invest in the companies.
So, obviously, in China you have a few bad apples that have pretty much destroyed the reputations of the ADRs in the US this year.
But having said that, I think the whole market in China is like a growing-up process. So there is a stage where they’re trying to grow up, and many of these companies, obviously, have no reason to be listed in the US.
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But I would say that as the market matures, some of these less reputable companies will probably be delisted or taken out. I think investors, when they invest in China or anywhere in the world, as a matter of fact, they definitely have to do their homework.
Kate Stalter: Tell us about some of the holdings you have in the fund right now, John.
John Wong: Well, our fund is focused on the emerging middle class in China and in Asia, and we look for companies that are geared to or that will benefit from the theme.
The companies that we invest in, in Asia and in China, are smaller companies that have market share leaderships in their respective markets.
For example, in China we own a company called Vinda, which is one of the largest tissue and toilet paper companies in China. And in Indonesia, we also own a company called Mitra Adiperkasa, which is a company that has shopping malls and owns fast food chains in Indonesia. Both companies are basically geared to a rising middle class in their respective countries.
Kate Stalter: Any sectors in particular? You just mentioned maybe a consumer staples or a consumer discretionary. Any other areas that you like right now?
John Wong: We also like the technology sector, which we believe is in some way defensive in the respective markets.
When I mention technology, I specifically refer to the Internet sector. For example, the smartphone is becoming ubiquitous in many parts of Asia, and with smartphones you have a lot of services that are provided. So we have been looking at the Internet and smartphone space for quite a while, and we have exposure to those companies involved with that.
|pagebreak|Kate Stalter: I want to just wrap up today with a broader question about emerging markets. Because not all of the ones you mentioned really can be considered emerging, but some can, and we hear all the time that these markets will grow at a faster rate than the developed world, but it’s not necessarily happening at the moment. So, do investors just need to be a little bit patient in the next few years?
John Wong: Well, I have been investing in the emerging markets for the last 20 years or so. When I first started in this business, obviously, the key reason or driver to invest in the emerging markets was diversification.
But as we know, the world has become more integrated and global, so the diversification theme doesn’t really work these days, especially when you have a crisis such as what we have today.
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So, I think the key thing for investors when they look at emerging markets, is to look at the growth in those countries. China, obviously, is a good example and you talk about Brazil, which is also growing very rapidly.
So the key things for investors when they look at this market are to look at the underlying economic growth in those countries where the government obviously has been more pro-growth and more business friendly. I think if you take a long-term view, like the next three to five years, many of these countries will obviously turn out well.