The China stockmarket boom that never happened, and AGF.

AGF – I have mentioned this previously as a potential buy and I pulled the trigger at 83 cents this week for a few reasons. Since they started to get serious about measures to reduce the NTA discount it has probably improved a little to have been in a range of 15-18% of late but I was estimating this could have nudged out to almost 19% when I bought.

Probably most importantly I haven’t spoken much about the underlying assets in a lot of these NTA discount plays I discuss. I have often assumed it goes without saying that with this investment strategy you still have to be comfortable owning the assets even if they were not trading at a discount. Whilst I remain concerned about the US stock market I have also stated how I believe in not trying to outsmart things too much and remain close to diversified target allocations across sectors, and also ideally across geographic locations. Ideally if you can do this by weighing into markets that have basic valuations in favour of them and coming off years of underperformance this is also likely to add value. I noticed recently almost all of the huge stock market gains in China that began a couple of years ago have virtually been wiped out and the CAPE ratio is lower than when that boom started. If the US stock market moves to new highs I feel other markets may have the potential to participate more like China. Vietnam I have some exposure and Russia I have mentioned is a potential buy on this basis also.

Back now to discussing the activist measures going on at AGF. I also thought it was encouraging a few days ago to see a resolution to wind up the company even though I realise AMP have a stranglehold here on the share register. It continues to show the pure activist funds (that may control a third of the company potentially) are very serious. This is being more acknowledged recently with the board having 2 items of clarification on their measures to address the discount that they did not initially consider when this battle started. They will reduce the share capital by 15% at NAV less transaction costs for those that participate. With AMP controlling a lot of shares that would not participate, and many on the register lazy retails shareholders that will not bother or not understand it, you may be able to get a reasonable number of shares back at the NTA soon. They also finally acknowledge they are more likely to conduct an on market share buyback. Whilst they could play hard ball and try and get away with things given their large controlling interest, AMP are now showing more signs to improve the management of this fund. If they do not, then the activists can play this battle out more in the media which is not good for the brand name that AMP relies upon.


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