Anthony Hilton: In markets it pays to take the contrary view

Five years ago at an investment conference in London hosted by Aberdeen Asset Management, a speaker urged the audience to buy European equities. Greece looked about to go bankrupt, the euro looked likely to disintegrate, most of southern Europe was grappling with a sovereign debt crisis and the economy was in recession.

What better time to buy?

His view was that investors could not lose. He thought the storms would abate and European shares would eventually be seen to be dirt cheap.

But if things turned out badly, Europe’s top global companies would continue as such so, again, in time their shares would be seen to be cheap.

And so it turned out, but at the time no one in the audience was willing to take the chance. They reacted with disbelief and the opportunity was lost.

The late Sir John Templeton, one of the fathers of the hedge fund industry, once said that you would never make money in the stock market doing what everyone else was doing.

You had to dare to be different to find value, to buy quality and then be patient while you wait for the rest of the world to catch up.

If that meant buying when markets were depressed and no one else wants to buy, then so be it. It served him well, and, indeed, Warren Buffett who took a similar view.

Interestingly, that — in many ways — is the position Aberdeen Asset Management finds itself in now. It is known for its expertise in Asian and emerging markets, (though far less dependent on those areas than people like to suppose), and because this sector has been in the doldrums for the past three years, it is suffering. Clients are pulling money out, bored with flat returns and lured by the hope of greater excitement elsewhere.

They see China slowing down dramatically and struggling to become a consumer-led domestically focused economy, and as a result trade volumes in Asia have tanked.

It all looks potentially very unstable and scary and the share prices reflect this. But were Templeton still around, one suspects he would be looking to invest.

The time for investors to get their money out was three years ago when markets were near their peak, not now when much of the adjustment has taken place.

Of course, no one can tell whether these emerging markets have touched bottom; they may still have further to fall. But the bigger point is that unless you believe that the Asian growth story is over for ever there will come a point — probably before too long — when they come back into fashion and today’s share prices will then be seen to have offered amazing value, just as Continental European shares did five years ago. Some of these investors will then wish they had doubled up instead of heading for the exit.

The real mystery in all this, however, is why some investors seem to be gunning for Martin Gilbert, Aberdeen’s boss and co-founder. The coded messages coming from analysts suggest that his position might be in doubt if the company continues to suffer an outflow of funds.

He is also criticised for not doing more to lessen the firm’s dependence on Asia — largely by those same analysts who sung his praises when he bought Scottish Widows Investment Partnership.

At the time they thought it did diversify the firm away from Asia, though they seem to have forgotten that now.