Markets: Kerr's keen on China

Kerr Neilson is back; from China. The Platinum Capital managing director said in an ASX statement he went on a trip to the “backwoods” of the world’s most populous nation and warns against being too pessimistic about it.

China “is a highly dynamic economy,” he says in a report about the second quarter performance of the Platinum International Fund. “Mass consumption has barely begun. Online shopping is growing at a prodigious pace. There is a huge need for improved logistical infrastructure. We are tending to favor these emerging themes. A full 4 per cent of our 6 per cent exposure to China is Internet-related themes”.

China’s leaders, Neilson says, are clamping down on improper business practices by local administrators, local Communist Party officials and state owned enterprises. What is not clear, he says, is how China’s private sector, which accounts for 70 per cent of the nation’s economic activity, will cope. It faces rising labour costs, a loss of competitiveness and softer demand. 

Platinum’s $8.4 billion international fund, managed by Neilson, has had an annual return of 13 per cent since inception. The Morgan Stanley Capital International all country index has gained 4.9 per cent during the same period. Neilson says $20,000 invested in the fund five years ago would now be worth about $30,000.

Neilson has increased his fund’s exposure in North America to 32 per cent of all investments from 29 per cent. He has decreased its exposure to Europe and Asia while increasing the fund’s cash position to 9 per cent and boosted its short positions in stocks, betting on their declines to 14 per cent.

Microsoft and Bank of America are the biggest single stock positions the fund has with its shareholding in each company comprising 3.4 per cent of the total value of the portfolio. Other large positions include Google, Sanofi, Ericsson, Toyota Industries, Cisco, Samsung Electronics and Bangkok Bank.

Neilson remains negative on the Australian dollar.

The fund has bought more shares in Ericsson, Baidu, Micron Technologies, Carnival Cruise Lines and Sina. It has sold all its shares in Siemens, Nintendo and Mitsubishi Corp. Neilson says he has new share positions in Intel, FedEx, Canon, Sumitomo Chemical and Aeon.