Positioning for yield in time for a global restart
As liquidity conditions improved, our portfolio manager shares how we are positioned for income opportunities across asset classes.
With the recent oil-price plunge and the global spread of COVID-19, APAC stock investors naturally are worried about market volatility and the impact on related funds. We share some frequently asked questions, and our answers about the JPMorgan Pacific Technology Fund.
Q1：HOW HAS COVID-19 IMPACTED THE APAC TECH INDUSTRY CHAIN?
COVID-19’s impact on the APAC tech industry chain can be viewed from a demand and supply perspective:
Supply: With COVID-19 contained in China, production has gradually resumed. Large manufacturing companies based outside Hubei province have resumed about 90% of their operations, with logistics at 92.5%. The higher product prices arising from recent shutdowns have helped support corporate earnings.
Demand: There are less demand concerns. With continued demand for future 5G upgrades, China’s government will likely accelerate the construction of new infrastructure. The pandemic has increased market demand for tech products.
Taking supply and demand into consideration, we believe the pandemic has limited impact on the industrial chain in the long term. Overall, it has been positive.
First, let’s analyse the reasons for the recent market corrections in Japan:
The Japanese market is cyclical and greatly affected by the external environment because the Nikkei index primarily comprises export-oriented companies such as automobiles and electronics. The external environment and the movement of the yen also directly affect the performance of the Nikkei index.
Secondly, the JPMorgan Pacific Technology Fund is actively managed and is not restricted by any indices. The Fund is committed to seeking long-term structural growth opportunities in the cycle, and prefers high-quality equities with growth opportunities, especially in technology, industrial automation, and game-related industries. Although these companies are in a cyclical market, they have a clear earnings growth trend.
Q3. THE TOKYO 2020 OLYMPIC GAMES WILL BE POSTPONED FOR ONE YEAR, HOW WILL THIS IMPACT THE JAPANESE ECONOMY? WHAT ARE THE FUTURE INVESTMENT OPPORTUNITIES?
The Tokyo 2020 Olympic Games were originally scheduled in July and August this year. Because of COVID-19, the International Olympic Committee confirmed on 24 March that a new date “will not be later than summer 2021”. In the meantime, we believe that many long-term structural opportunities still remain:
Q4. WHAT IS THE IMPACT OF COVID-19 ON SOUTH KOREA AND TAIWAN?
The factories of most South Korean tech companies are not located in South Korea and as such, the impact of COVID-19 on production is expected to be limited. Taiwan has quite effectively contained the spread of COVID-19, and the impact there is limited.
Q5. WHAT IMPACT WILL THE PLUNGE IN OIL PRICES HAVE ON DIFFERENT ASIAN MARKETS?
Asia accounts for 40% of global energy consumption, and low oil prices are positive for the region’s fiscal performance. Meanwhile, low oil prices have reduced inflationary pressure in Asia, leaving more room for central bank stimulus policies. The significant market correction is a reflection of bearish investor sentiment.
Oil-exporters such as Malaysia and Indonesia may be adversely affected. As oil export accounts respectively for about 3% of each country’s gross domestic product, a drop in oil prices will directly result in a reduction in their fiscal revenue, or an increase in the budget deficit. Such negative impact may be reflected in the currency exchange rates for these two countries.
Oil importers such as South Korea, China, Taiwan, Thailand and India can benefit from lower oil prices.
Q6. WHAT IS YOUR INVESTMENT RECOMMENDATION IN VIEW OF THE CURRENT GLOBAL MARKET ENVIRONMENT?
The recent black swan events in the global equity market highlight the importance and significance of diversified1 asset allocations. As the correlations among different asset classes vary, assets that have lower or negative correlations could help buffer your investment portfolio. Investors should adhere to a long-term diversified1 allocation, harnessing the power of compounding amid volatile market conditions and over different market cycles to build stronger portfolios.
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