By Leo Bland The Solus Eastern Enterprise Oeic has over a quarter of its portfolio in cash in the b...
By Leo Bland
The Solus Eastern Enterprise Oeic has over a quarter of its portfolio in cash in the belief that the recent volatility in Far Eastern stock markets is set to continue.
The Far East ex Japan fund, which is managed by Lawrence Yip of Far East investment boutique ARN Investment Partners, has 26% in cash and is underweight in all of the Far Eastern markets apart from Hong Kong and China. The cash weighting is the second biggest holding in the fund, with the largest being the 35% invested in Hong Kong.
Yip is looking to reduce the cash position to around 20% over the near term but remains cautious on the short-term prospects for Far Eastern stock markets.
He said: "This year the markets have been very volatile and it has been a difficult period to manage a fund investing in the Far East excluding Japan.
"At the end of the first quarter we had the fall in technology stocks in the US feeding through into Asia as well and in April/May there was a scare over interest rate hikes in the US. More recently, there are concerns for the technology sector in that there might be a slowdown in PC demand and this has hit some of the markets in the region.
"Moving forward, we believe that the outlook and market environment has not settled down which is why the portfolio is defensively positioned."
The fund has recently cut its exposure to Taiwan on the back of concerns that demand for PCs and handsets may slow down which could affect the country's outsourced technology manufacturing industry.
Taiwan makes up 13% of the portfolio, an underweight position, while Korea and Singapore are also being underweighted with positions of 5% and 3% respectively.
Yip added that another negative for Korea and Taiwan is the price of oil, currently at its highest for 10 years at over $35 a barrel.
Korea and Taiwan are both net importers of oil and Yip believes their manufacturing sectors may be hit by the increasing cost of energy.
But Yip has increased the fund's exposure to China, which makes up 12% of the portfolio. Yip said: "We are quite positive on the outlook for China on the back of the economic reform taking place and we believe that China will become a major force within the Asian region.
China can help the region to reduce its dependence on the US economy and stock market.
"It is not going to substitute completely the role of the US but I think the growing significance of China is going to make the picture more balanced going forward."
Over three years to 4 October, Solus Eastern Enterprise is 20 out of 67 funds in the Far East excluding Japan sector on a fall of 3.7% and is 11 out of 75 over one year on growth of 20.6%. Over three months, on a bid to bid basis, the fund is 21 out of 79 on a fall of 5.8%.
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