Zurich: Christian Zogg, who oversees $400 million (Rs1,640 crore) at LLB Investment Partners AG in Liechtenstein, says buying shares of companies in his neighbourhood helped his fund profit from economic growth in China and India.
Zogg’s Regio Bodensee fund has about 80% of its assets in companies in the Lake Constance region, a Connecticut-sized area encompassing parts of Germany, Austria, Switzerland and Liechtenstein. His largest holding, Swiss metal-castings maker Georg Fischer Holding AG, is building a second metal foundry in China. It plans to raise Asia sales to 20% of the total, more than half from China, from 13% in 2006. Shares are up 17% this year.
“China and India are big buyers of capital equipment out of Europe,” Zogg, 40, said in an interview from his office in Vaduz. “We sit right in the middle of a belt of industrial companies that benefit from that demand.” He recently raised his stakes in AFG Arbonia-Forster Holding AG, a Swiss producer of home appliances that’s opening factories and shops in China, and SEZ Holding AG, a Zurich-based semiconductor equipment maker that derives more than two-thirds of sales in Asia.
China’s economy expanded at an annual pace of 10% in the fourth quarter and India’s at 8.6%, compared with a 3.1% rate in the US and 3.3% for the 13 nations sharing the euro. Riding that growth has helped propel the fund to the top 1% among 1,020 European funds that focus on European equity in the year to 23 April, data from Morningstar Inc. show.
Optimistic: Christian Zogg, senior vice-president of the Liechtensteinische Landesbank.
The 112 million-Swiss franc (around Rs3,700 crore) fund, named after the German term for Lake Constance, has returned 22% this year. Its benchmark, the Swiss Small & Middle Companies Index, has gained 16%. The fund’s rules also allow Zogg to invest in parts of the German regions of Bavaria and Baden-Wuerttemberg outside the immediate Lake Constance region.
Zogg has a combined 68% of the fund’s holdings in industrial companies, technology stocks, and the so-called consumer discretionary stocks, which all depend on expanding economies. These groups make up just a third of his benchmark.
Liechtensteinische Landesbank AG, one of 15 banks in the principality, set up the Regio Bodensee fund in 1998 to offer clients a local investment. The lake, whose basin was scraped out by Ice Age glaciers, is situated close to the Alps and lies about 40 miles east of Zurich, Switzerland’s most populous city.
Companies in Zogg’s benchmark have an average capitalization of about $1.6 billion. The manager, who uses computer software to help pick his investments, doesn’t normally hold more than 5% of the fund in any one stock. Earnings at Georg Fischer surged 42% last year on increased demand for piping and car parts in China. The company is situated in Schaffhausen, about 12 miles down the river Rhine from where it drains out of Lake Constance.
AFG Arbonia-Forster, which bought Miele & Cie.’s kitchen unit and is Regio Bodensee’s fourth-largest position, has surged 35% so far this year on prospects it will benefit from rising consumer spending in China. Retail sales there grew 15.3% in March from a year earlier, the country’s statistics bureau said last month. AFG, based in Arbon on the Swiss shores of Lake Constance, plans to increase revenue in China by as much as 30% by opening factories and shops there, chief executive officer Edgar Oehler said in a 7 March interview from Hong Kong.
Zogg exercised all rights to buy new AFG shares he was offered as part of the kitchen maker’s 108 million-franc capital increase this month, saying the company’s strategy of widening its range of construction products will pay off. He recently increased his stake in SEZ, which supplies gear to Asian semiconductor makers. The company is “finally making some money as their technological standards are catching on,” he said. SEZ said last month that first-quarter profit jumped more than fivefold.
Confidence in Asia may be misplaced, according to Sushant Sharma, chief investment officer at Zurich-based private bank Maerki Baumann & Co. The International Monetary Fund (IMF) last month forecast that Chinese economic growth will slow to 10% in 2007 and 9.5% in 2008 from 10.7% last year. The Chinese central bank ordered banks on 29 April to set aside more reserves for the seventh time in 11 months to prevent the world’s fastest-growing major economy from overheating.
India’s growth rate will edge down to 8.4% this year and to 7.8% in 2008 from a 9.2% expansion in 2006, IMF said. “Interest rates are rising in both countries,” said Sharma, who oversees the equivalent of $6 billion. “Borrowing is becoming more expensive and that’s putting the brakes on the industrial and technology sectors. This year won’t be as good as 2006 was for exports.”
Not every member of Zogg’s Lake Constance-Asia axis has outperformed. Rieter AG, a Winterthur, Switzerland-based maker of textile machinery and auto parts, is up only 3.3% this year although 2006 profit rose 14% on rising demand for its yarn spinning machines in India.
Zogg is unperturbed. “Growth may be slowing but the world economy will hold up well overall and India and China will remain the main drivers,” he said. He won’t cut back on his holdings in the rising economies unless recession threatens, he said. Zogg’s focus on the region isn’t surprising.
He was born in the Swiss city of Lucerne and studied business at the University of Applied Sciences in St. Gallen, about seven miles off the lake’s shore. He started his career in 1992 as an investment banker for Swiss Bank Corp. in Zurich, now a part of UBS AG. In 1998 he joined LLB’s asset management unit.
“I follow developments all over the world but knowing the local mentality here helps me put into perspective what company CEOs are telling me,” he said.