How variety could be the spice of long-term investing
Investors could rarely achieve their investment goals by focusing on just one asset. Find out why.
Global economic activities have started to resume as social distancing measures are gradually being lifted in some locations. Still, the economic fallout of the pandemic is likely to persist as the reopening of economies is neither smooth nor quick. In Asia where the acute respiratory disease was first reported, the infection curve is stabilising and production activities are getting back on track.
Against this backdrop, investors could, based on their investment objectives and risk appetite, re-consider Asia’s long-term investment themes1 and the growth opportunities emerging from the region’s economic recovery. The pandemic has accelerated structural trends in digitalisation and healthcare innovation, creating potential opportunities for Asian corporates.
1. Will the pandemic derail Asia’s long-term growth trends?
Asia has long been considered the world’s growth engine, even though some investors have questioned whether its growth momentum could continue amid a pandemic. While the economic fallout of the pandemic still persists, we believe Asia’s long-term growth trends have seemed to remain intact.
Asian governments and corporates have generally demonstrated their ability to mitigate downside risks of the pandemic with decisive moves and flexible approaches. Consumer and corporate behaviours in Asia have resumed and are striving to return to pre-pandemic level. China is one example where its industrial production activities have begun to resume.
The MSCI Asia ex-Japan index2 has rebounded by 28.2% since the trough in March, as of 16 June 2020. Year-to-date, it is still down -6.71%. Looking forward, the Asian market could be re-rated to better reflect the operational strength and profit growth potential of Asia corporates.
2. What are the structural trends that could be translated into investment opportunities1?
As economies expand and wealth accumulation progresses, the global middle class grew by a billion over the last 10 years. The next billion is expected to arrive by 2023, of which 90% will be in Asia Pacific3.
By 2025, annual consumption in emerging markets is expected to increase to US$30 trillion3, which is roughly on par with developed markets. This has shown that an increase in income could drive wealthy consumers to pursue quality lifestyles, unleashing accelerating demand for consumption. Meanwhile, baby boomers who have accumulated wealth are turning their focus on retirement planning and medical insurances, deepening the development of some structural growth themes.
Lifestyle upgrades: Rising income is driving consumption demand, especially for consumer discretionary such as sports and electronic expenses. In our opinion, e-commerce, online entertainment and enterprise software are well positioned to benefit from the change in consumption pattern.
Demographic changes: Demographic changes in Asia could also create broader investment opportunities. For example, the ageing population is expected to drive demand for medical services and healthcare, which in turn, could benefit pharmaceutical players with research and development capabilities; the growing number of middle class parents devoting more attention to their children could also lead to higher demand for education services.
Financial deepening: As Asian economies continue to grow, demand for wealth management, retirement planning and medical insurance is expected to rise in tandem, and could benefit financial service providers.
3. How do you capture Asian growth opportunities4?
To ride on the long-term growth potential of Asia, we believe that it is important to accurately capture structural growth trends within the region and to identify quality corporates that excel in profitability, earnings sustainability and capital allocation
Our Emerging Markets & Asia Pacific Equities Team has been investing in Asia for over 50 years5. We take a flexible, growth-oriented investing approach that leverages bottom-up research to select quality Asian stocks, identifying the structural winners through long-term growth themes in Asia.
The long-term growth stories of Asia have generally lremained intact despite the pandemic. Interestingly, the pandemic has accelerated the development of some existing trends, creating attractive investment opportunities for active managers who are deep-rooted in Asia.