Where to turn to catch long-term tailwinds

In our previous Collection, our duo of Asian markets experts analysed the under-appreciated markets of Asia, besides China. In part two of this three-part Collection, our experts will provide their medium to long term outlook for Asian markets. 

In considering sectors, notably the consumption sector and the IT sector, along with the underlying geopolitical tension surrounding the continent, the question must be asked, is Asia robust enough to continue to grow? Our experts hone in on specific Asian markets including China and Taiwan, as well as the companies that will allow for Asia's continuous growth, despite external factors. 

Responses come from: 

• Dr Joseph Lai, Platinum Asset Management 
• Joohee An, Mirae Asset Global Investments 

A robust future for Asia 

Dr Joseph Lai, Platinum Asset Management 

We believe the medium-term outlook for investing in Asia is robust, with global portfolios still dominated by US equities at present, despite the growth and development of the region in the last two decades. In the coming years, at a minimum, it would make sense for portfolios to more appropriately reflect the world we are living in, but better than that, growth prospects appear under-priced in many cases.

Importantly, the longer-term growth of the strong domestic companies throughout Asia should not be impacted so much by external factors. For example, the strong internet, insurance, healthcare and consumer companies should continue to grow, regardless of trade posturing. China is already the biggest market in the world, not only for natural resources and industrial products, but also for most consumer products. Its economic cycle will have an impact on how to approach exporters from the rest of the region and indeed, further afield.

We are confident that the consumption sector will continue to expand, driven by improvements in income and the adoption of consumer credit. We are seeing India and the South East Asian countries (e.g. Thailand and Indonesia) growing endogenously, driven by investment in infrastructure, reforms and a rising consumer class. Each country has its own domestic champions – its favourite brands. Over the medium term, we believe the consumption story is one of the biggest reasons to be an investor in the region.

The more mature economies in Korea and Taiwan have already built global technology leaders in companies like Samsung Electronics and Taiwan Semiconductor Manufacturing. This has been the result of huge investment in research and development. It is likely that in addition to a booming technology sector, we will also see major advances in healthcare in the coming years. 

China's New-Economy 

Joohee An, Mirae Asset Global Investments 

In light of the US-China trade war and the global pandemic that is drawing out longer than anticipated, we expect the Chinese government to increase efforts in switching its economic growth engine from external to domestic demand with more effective and efficient measures and policies than seen previously.

The transition of China from its Old Economy to its New Economy exhibits the growing sector-level themes that support a surging consumer story. China is now coming out of its manufacturing focused sectors and evolving to be the end-consumer of these goods. The big shift also helps job markets to be more resilient and the nation to secure social stability. Even under the COVID-19 pandemic situation during 1H2020, the new job creation figure had already reached 5.6 million, attaining 62% of government’s annual target of 9 million jobs; this was mainly driven by new economy sectors.

The full year GDP growth is still expected to reach positive territory after it showed a much stronger than anticipated growth figure in 2Q2020. In spite of this, markets may remain uncertain with heightened noise ahead of the US elections in November and may persist through the next couple of quarters.

Recently we have seen the re-escalation in a border standoff between India and China in the Himalayan Galwan Valley. We believe that it would remain restricted to the border as both India and China are individually grappling with issues such as COVID, the trade war with the US and would not favour both parties should there be a significant escalation.

As the COVID-19 pandemic becomes a longer than anticipated battle, we have maintained a longer-term positive view on online players. We believe these online players will show business resilience for a longer period of time than originally anticipated. As people spend more time on their phones during lockdown, more content is consumed in the form of games, videos and e-commerce, etc. We anticipate that domestic consumption growth trend will be relatively healthier with government support as well as a structural trend in premiumization; increasing penetration in various consumer sectors, even with the uncertainty post-COVID and US-China tensions.

We also maintain a positive view on the online healthcare sector, especially in China. The government’s long-term initiative to ease burdens on hospitals and allow patients to seek online consultation for minor conditions combined with the tailwind of COVID, should accelerate the adoption of online healthcare.

India is another market where we see opportunity; we understand that Consumer Staples in the market is not cheap, hence we take a selective approach in concentrating on companies that are industry consolidators in this space. We see investment value in select Consumer Banks, Consumer Staples, and Hospital names which are anticipated to perform well on the back of India’s economic recovery story.

Finding growth outside 'the usual suspects'

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