Emerging Asia in Full Bloom
Matthews Asia portfolio manager Robert Harvey invests in economies with a long runway for growth. In a new profile, Robert discusses his career path and investment approach.
Spotlight on Robert Harvey, Matthews Asia Portfolio Manager
An avid gardener and birdwatcher, Robert Harvey keeps orchids on the balcony of his apartment. When in bloom, the orchids attract insects and birds, creating a small oasis in an otherwise urban setting. Gardening requires patience, awareness of local conditions and attentiveness to change, qualities that serve Robert well in his role at Matthews Asia. As lead portfolio manager of the Matthews Emerging Asia Strategy, Robert invests in economies in the early stages of development, such as Vietnam, Indonesia and the Philippines.
“Our universe begins with economies that have a long runway for growth,” says Robert. Making frequent research trips to frontier and emerging markets in South and Southeast Asia, Robert enjoys searching for well-managed companies with the ability to tap the growth potential of the region. His process begins with conducting extensive due diligence on prospective portfolio holdings. “The most effective way to understand companies in fast-growing markets is to spend time on the ground, interacting and talking with a business’s customers, vendors and employees,” he notes.
Robert’s interest in investing started early. Growing up Johannesburg, South Africa, Robert began reading business books in the 7th grade, including a biography of noted investor Carl Icahn. Using earnings from a paper delivery route, Robert opened his first brokerage account at the age of 12. “I owned 100 shares of a local company that doubled in value over time,” he recalls. “This got me very interested in the idea that your money could work for you while you were off doing other things.”
After majoring in finance at university, Robert managed mutual funds for the Standard Bank of South Africa, including a small-cap fund. He later moved to London to join the global emerging markets equity team of F&C Asset Management. During that time he developed a deep interest in Asia’s smaller economies and eventually moved to Vietnam in 2009 to be closer the region’s investment opportunities. In Vietnam, Robert worked at PXP Vietnam Asset Management as a portfolio manager. “Following the global financial crisis, the average daily trading volume of Vietnam’s domestic stock market was around US$28 million a day back in 2008,” says Robert. “Ten years later in 2018, the same exchange averaged around US$282 million a day in trading volume.”
In 2012, Robert joined Matthews Asia to help launch firm’s Emerging Asia Strategy. The strategy focuses on the least developed parts of Asia. “There can be significant structural and demographic differences between the North Asia countries of Japan, China, South Korea and Taiwan and many of South and Southeast Asia countries where we invest,” says Robert. “Populations in less developed parts of Asia tend to be younger, wages are lower and consumer goods often start with basic necessities.” At a certain point in development, demand for basic goods may reach a natural plateau. At those inflection points, branded consumer and business services, including travel and recreation, tend to become the next area of secular growth.
The consumer is a common thread within the Matthews Emerging Asia Strategy. “We like the capital structure of consumer-oriented companies because it’s often easier for these companies to scale up or dial down production based on demand,” says Robert. In contrast, a sector such as industrials can be highly capital intensive and can be more exposed to cyclical trends, making it difficult for industrial producers to pivot amid fluctuations in demand. “We also find that consumer-oriented companies tend to have better pricing power than many other sectors,” he notes. If the cost of inputs goes up, the cost can be passed along to the consumer in the form of higher prices.
While trade tensions have been an overhang for global equity markets, less developed parts of Asia have been somewhat immune. “Tariffs haven’t changed the game for Southeast Asia, because the game was already good,” says Robert. Factories in Vietnam, for example, are already operating at high levels of capacity to handle their U.S. orders. “Vietnam benefits from a relatively steady growth, backed by a young labor force and rising foreign direct investment,” says Robert. In contrast, a country such as Pakistan can be more cyclical, with stronger swings between booms and busts, he notes.
Volatility is part of the opportunity set for active managers. Robert enjoys being able to buy stocks of quality companies when prices are low and certain sectors or geographies may be temporarily out of favor. “Within our investment process, we pay particular attention to valuation,” says Robert. Starting a position at a reasonable valuation can protect a bit on the downside and may provide greater upside potential over time. Generating attractive returns in emerging Asia requires a long-term perspective, he adds. “You need the patience and temperament to stay invested across the market’s cycle.”
Orchids remind Robert of how different plants can thrive in different environments, based on natural selection and adaptation. The key is knowing where things are most likely to take root. “Companies that do well in one part of the region may struggle elsewhere,” says Robert. When studying the private sector, Robert likes to immerse himself in the region’s diverse business ecology. “Drawing on a disciplined, patient approach, we seek to identify companies with strong leadership and the potential to bloom in their environment,” Robert concludes.