From seeing Asia’s trends to knowing markets that stand to benefit
Seeking out opportunities in Asia amid growing wealth, consumption and savviness.
Q1. What are some of the structural changes that have emerged with the onset of the global public health crisis, and what impact would these have on macro themes?
The pandemic has positively impacted a few secular trends that have been gaining pace in recent years. At the same time, it has also dampened the outlook for some industries reliant on the movement and engagement of people, such as airlines, cruise liners and restaurants.
As employees around the globe have transitioned to working from home, there has been significant acceleration in digital transformation. Many companies have focused on digital projects to manage their infrastructure remotely, connect employees, better serve customers and cut costs.
As companies have realised efficiencies, and remote working arrangements have become a preferred option for many employees, we believe this trend is unlikely to taper as the global economy opens up. We think this provides strong opportunities across technology companies providing cloud computing services and software capability through advanced applications2.
With employees working from home and unable to visit shops, e-commerce has also seen a notable acceleration, benefiting large online retailers and payment companies. While we expect this trend to continue, expanding globally and benefiting from changes in habits, we will see some shorter term give back if shops re-open2.
Q2. How is the Strategy positioned to optimise the global economic recovery4?
From April, as infection rates began to stabilise and mobility restrictions were largely eased, we saw many locations moving out of a contraction phase and into the early stages of recovery.
We modestly increased risk and tilted the portfolio3 to have more exposure in cyclical trends related to business and market cycles. In equity, we added select names across financials, consumer discretionary and industrials, which also reflect some of our long-term secular trends that are already in place, such as growth in emerging market (EM) consumer demand and the response to climate change.
Our current macro themes
Recovery was initially stronger-than-anticipated and has since moderated somewhat, especially as some locations experience new waves of infections. Throughout, we remained very conscious of the ongoing risk of a resurgence of infections and further mobility restrictions. We have maintained our gold strategy3 and more defensive positioning in currencies, resulting in a modest level of overall risk. We remain flexible to adjust positioning as the outlook evolves4.
Q3. What are the views on China and other emerging markets
When it comes to China, data over recent months has shown a V-shaped recovery, with the path of growth likely to be flatter from here. Industrial production has been stronger than consumption through the recovery, which partly reflects the focus of stimulus in targeted areas. We believe that macro data can continue to improve in the coming months but anticipate a lower rate of growth for the year versus recent years due to the shock experienced and weaker external environment2.
China’s real gross domestic product contribution5
Within our EM consumer demand theme3, we are capturing investment opportunities driven by the rise of the middle-class in emerging markets. As an example of this growth, the working age population in India is expected to grow at more than 1% per annum for the next 10 years2,6.
As wealth grows, productivity increases and consumer spending rises. We believe this further increases the demand for consumer products, better healthcare, improved housing, and the credit products needed to fund these needs2. We are reflecting this theme through consumer discretionary companies, life insurers and banks in emerging markets, particularly in India, Russia and China4.
Q4. What are the key trends relating to climate change theme, and how is the Strategy1 responding to them4?
Our climate change response theme reflects the increased focus on the climate agenda by governments, companies and consumers as scientists warn we are nearing a point that the negative impact of greenhouse gas (GHG) emissions may be irreversible. One way we are capturing this secular trend is by investing in power generation3, which is a large producer of emissions and key focus for a transition to a greener economy. We are investing in the European utilities companies that are leading this transition away from fossil fuels towards renewables.
We are also investing in greener transport3, currently through rail, and in energy efficiency through industrials that should benefit from the European Commission’s aim to increase the efficiency of buildings in order to reduce GHG emissions, which is projected to double the renovation rate.
Q5. What is a trend that investors could be overlooking as the world recovers from the health crisis?
One interesting implication is the crisis is reinforcing some of the trends4 that were already in place. Working-from-home is becoming more widespread and companies want to manage their infrastructure remotely - this could imply that we are going to live in a more digital world versus a physical world.
This has important implications for the consumption of software, and we expect software spend to continue to increase as a percentage of gross domestic product. Other technology trends such as the adoption of electronic payments and cloud computing also stand to benefit2.
With global growth likely to slow as we navigate through the uncertainty of a resurgence in infections, we believe that employing a macro, focused and flexible approach, with the ability to invest globally across asset classes, could add value for investors4.