How Platinum is finding value in this unloved sector

It's not supposed to be a good sector when wallets are thin, but Platinum Asset Management is looking to capitalise on the retail trade.
David Thornton

Livewire Markets

With higher rates, inflation, and the very real chance of global recession, consumer discretionary has understandably fallen out of favour with investors. 

Compounding that is the fact that the COVID stimulus sugar high the sector enjoyed has now worn off. But the Platinum Asia Fund (Quoted Managed Hedge Fund) remains long in the sector. 

"Unlike what you've seen in a number of the more developed markets where consumers were flushed with cash, given money from stimulus the last few years, and actually those sectors were quite buoyant, across Asia you didn't see that same level of stimulus," says fund co-portfolio manager Cameron Robertson

"So the consumer discretionary companies there don't have the same sort of washout that you are perhaps seeing in some other more developed markets."

In this Expert Insights, Robertson also discusses China's recent pullback (and the value that's followed), and a Korean stock that investors are sure to know (and wear). 

Note: This interview was filmed on 30 March 2023. 


LW: What problem does the Fund (ASX: PAXX) solve for investors?

The Fund is set up to invest in regions that are exposed to the Asian region. So whether it's based there or does a lot of their business there, predominantly exposed to those regions, ex Japan, of course. 

Now, in terms of what problem that's solving for investors, a lot of these markets are a little bit different to how investors expect markets to operate. Sometimes, they can be a little bit difficult to access, whether that's Chinese A-shares, Indian companies, Vietnamese markets, a lot of these markets have restrictions on them. It's a great way for investors to get access to a dynamic region, which is home to half the world's population, and has been a driver of global growth over the past couple of decades.

LW: Chinese large cap tech stocks have been sold off amid regulatory changes. How has this impacted valuations?

There has been a number of changes to the regulatory environment in recent years, and that's impacted on a number of the large cap tech companies there. I think actually, when you think about it, there's always winners and losers from this kind of thing. So when you have a company that's subject to anti-monopoly regulation, that can be difficult for that specific company, but actually it can open up the competitive environment for others, level the playing field. So there are winners and losers from any of these things, and change creates opportunities for investors. 

We have seen investors shy away a little bit from that, because they saw the environment as changing, and a bit uncertain as to what that might mean. But realistically, I think that can create great opportunities for people who are willing to understand what the new environment looks like and what the opportunities are there. So we continue to have investments in companies like, Alibaba. There are a number of these companies that we think actually are still quite prospective, given the environment, as it's played out.

LW: Why is the Fund long consumer discretionary?

The Fund does have a reasonable exposure to consumer discretionary. The one thing I would say though is we very much build the Funds bottom up. So each of these, it's company by company specific stories about what's going on in that company, that industry. And unlike what you've seen in a number of the more developed markets where consumers were flushed with cash, given money from stimulus the last few years, and actually those sectors were quite buoyant, across Asia you didn't see that same level of stimulus. 

So the consumer discretionary companies there don't have the same sort of washout that you are perhaps seeing in some other more developed markets. And actually when you think about it, companies that we own in the portfolio like Midea (SHE: 000333), which does white goods in China, this is more exposed to the property industry, which I think many people will know has actually had a really tough time the past 18 months. And there are signs that that's bottoming and starting to pick up. So we see areas like that as a good opportunity.

In Korea, we've recently invested in Fila (KRX: 081660), the sports apparel label, that's known globally. It's actually owned by a Korean company. And we think that that's a great opportunity as they turn that brand around. 

They've done a great job in Asia with that, in Korea and in China, and we think that actually what they're doing in the US and across the rest of the world is setting that company up really well. So that's a couple of examples of opportunities we're seeing in that space.

LW: Which Asian markets ex-china are offering the best opportunities?

Really I think the markets, ex China, across Asia that we're excited about, each country has its own story. Whether that's a domestic story, whether that's an export story. South Korea is one that we've been quite enthusiastic about recently and have almost doubled our exposure to that market over the past sort of nine months. 

The reason for that is it's a relatively cheap market. So overall it trades on a low-teens price-earnings multiple. It has traded on a low-ish multiple for many years. But one of the fundamental reasons why it has traded on that lower valuation historically is around investor protections. The laws in South Korea historically weren't great actually for investors. It was something you had to be quite careful of.

But as that country's got wealthier, now in South Korea, GDP per capita is about $33,000, which is in line with parts of Europe. And that's meant that a lot more people actually own shares there. And so it becomes a political issue and there is now a significant political impetus to try and put in place better investor protections. And you've seen that quite consistently coming through over the past five plus years. And we very much expect that that'll continue. And while it doesn't sound like a very exciting story for a market, I think actually that'll be really meaningful for what that implies for investors in that market.

Platinum Asia Fund (Quoted Managed Hedge Fund)
Global Shares

Platinum Investment Management Limited ABN 25 063 565 006, AFSL 221935, trading as Platinum Asset Management (“Platinum”). This information is general in nature and does not take into account your specific needs or circumstances. You should consider your own financial position, objectives and requirements and seek professional financial advice before making any financial decisions.

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David Thornton
Content Editor
Livewire Markets

David is a content editor at Livewire Markets. He currently hosts The Rules of Investing, a half hour podcast where he sits down with leading experts across equities, fixed income and macro.

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