Emerging world veteran Hugh Young has revealed he is hugely sceptical on company reporting in China although improvements could see him lift direct exposure beyond minimum levels in his flagship funds.
Young, who runs a host of developing world and Asia equity funds at Aberdeen Asset Management, said China has proved a very difficult market in which to operate but, in essence, it has not helped itself.
Pointing to the start of the year, when the Chinese market twice shut down due to circuit-breaker mechanisms coming into effect, Young said China was unlikely to let an incident like this be repeated.
‘There has been huge speculation within the stock markets and we have seen big booms and busts over the last 12-18 months, some dramatic corporate frauds as well coming out of China,’ he said in an investor update.
‘So it has been a very difficult period for investors and we also, for a period, saw half of the Chinese stock market closed by essentially by government fiat, to stop the market falling. But, the Chinese learn very quickly, they adapt and they change.’
Young, who was pinpointed in as undergoing a tough period of performance, said he is naturally cautious on China.
He has 6% China exposure in his $3.9 billion Aberdeen Global – Asia Pacific Equity fund, which compares to a 24.5% exposure to Hong Kong, which is the largest country allocation in the Luxembourg-domiciled.
‘We do a lot of homework and have had relatively little direct exposure to China due to our concerns over governance and simply the way companies are accounted for,’ Young added.
‘We don’t trust the figures in many of the companies but we are getting more and more comfort as we do the work and have a substantial team covering China, as mainland Chinese which is absolutely important given the language difference.’
The Aberdeen Global – Asia Pacific Equity fund lost 15.7% in US dollar terms over the three years to the end of May 2016. This compares to a fall of 2.7% by its Citywire-assigned benchmark, the MSCI AC Asia Pacific ex Japan TR USD, over the same timeframe.