Investor Dialogue: Chan Kum Kong

DBS Asset Management's senior vice-president Chan Kum Kong talks to FinanceAsia about opportunities in Asia and exposure to China's railway industry.

What is your investment philosophy and process?
We believe consistent earnings growth drives long-term investment returns. We deliver superior investment performance through a combination of "top-down" macro strategies and "bottom-up" stock selection, balanced by a disciplined risk management approach. Our team-based approach towards investment decisions allows managers the freedom to pursue their own style of investment and yet ensures a healthy discussion underpinned by in-depth research.

From a process standpoint, our macro analysis adds value to portfolio performance from a country and sector allocation perspective. We believe that a careful analysis of the macroeconomic conditions in Asia is important to growth and inflation expectations, driving earnings, prices, currency values and ultimately interest rates and stock valuations.

Our stock selection process seeks to add value by dedicating efforts to non-benchmark stocks and out-of-focus benchmark stocks to add alpha to the portfolio. These are typically in companies where sell-side analysis has scant coverage, or where there is a wide dispersion of earnings estimates.

What is your investment strategy and style?
We adopt a bottom-up, growth-oriented, long-only investment style. We believe stock returns are the highest when returns on equities or profit margin trends are turning around or accelerating. Generally our portfolio is tilted towards companies with above-market earnings growth on a sustainable basis. Our portfolio is constructed based on the outcome of high conviction ideas derived from identifying multi-year investment themes.

Is most of your research primary, or do you rely on external analysts?
Our aim is to develop an information edge by emphasising effective research. As such, our research time is focused on areas where we are able to generate the most alpha.

For well-researched benchmark stocks, secondary research efforts such as sell-side research and consensus information are used. Our research effort in these stocks is targeted at challenging consensus assumptions and applying our fair-valuation matrix. In contrast, in-house primary research efforts are targeted at alpha ideas for maximum added value. Sector specialists and fund managers undertake first-hand research to gain in-depth understanding of companies and their fundamental value compared to the market prices.

Who are your investors?
Retail, private and institutional investors. Our client type includes central banks, pension funds, insurance companies, financial institutions and corporates.

What would you like to highlight about the firm's performance?
Our suite of funds in the Asian space has shown strong performance in the past years, garnering numerous fund awards. This year our global equities fund, Mendaki Global, received the "best fund over three and five years - equity global" award at the Edge-Lipper Singapore unit trust fund awards. Our global fixed income fund, Shenton Income Fund, has been ranked top quartile among global peers and Shenton Thrift Fund, a Singapore equities fund with the flexibility to invest in opportunities in other parts of Asia, has contributed strong outperformance versus the benchmark.

Are your funds growing?
Assets under management for DBSAM Group has experienced 36% growth over the past year to reach S$29.3 billion ($21.08 billion). These include100% of DBS Asset Management, 30% of HWANGDBS Investment Management, Malaysia, 50% of AIIMAN and 33% of the Changsheng Fund.

Have you plans to set up new specialist funds?
To broaden our investment solutions to our clients, we are establishing Myo Capital Special Situations Fund I, which invests in distressed debt and special situations opportunities in Asia. DBSAM is working in collaboration with Myo Capital, a Hong Kong firm funded by a group of experienced investment professionals that specialises in distressed debt and special situations investments.

Another specialist fund that we have recently launched this year is the DBSAM China Retail Network Opportunities Fund. The investment objective of this fund is to seek exposure to the Chinese railway industry by investing primarily in the listed equities of Chinese A-share companies. The fund has garnered strong interest from accredited investors in Asia looking for A-share access and through careful deployment and strong investment strategy, the fund has outperformed the China indices year to date.

What are the best opportunities now?
The best opportunities are in Asia. Economic fundamentals in the region are strong and they should remain resilient in light of recent developments in Europe. Recent declines in Asian equity markets have led valuations to retreat to attractive levels; we look to opportunistically accumulate positions on market weakness.

We are positive on China, on our view that economic tightening fears are priced-in and there is potential for China to reverse or slow down its tightening stance. A burgeoning middle-class in China will reinforce the consumption theme. Current wage hikes in China will hurt manufacturers' margins but will spur long-term domestic consumption.

We also see opportunities in Thailand, as months of political turmoil have simmered down, valuations have become attractive and long-term economic prospects remain positive.

What are the biggest risks?
At this juncture macro headwinds are hogging the limelight, and we fear that risks of over-tightening policies in China and Europe's debt crisis spinning out of control might have a negative impact on the regional economies.

This story was first published in the July 2010 issue of FinanceAsia magazine

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