It’s the biggest and fastest-growing major economy in the region and is experiencing a robust post-pandemic rebound.
China’s success in containing the coronavirus means it’s able to operate much more normally than the rest of the world. Factories have been busy making medical supplies for export and the tools people need to work at home, like computers, furniture and home renovation items. In November, the country’s manufacturing index soared to a multi-year high.
The country’s enviable status means it dominates our expert panel’s ideas on how to put your money to work right now in Asia.
That’s regardless of whether you want to position yourself to get ahead of long-term trends like 5G, or take a more short-term bet that bad loans have peaked at the country’s banks.
If you’re looking for diversification, we’ve brought together alternative suggestions that include commodities and Indian bonds.
All these investment ideas assume you have the basics in place. That means a sound underlying asset allocation with a split between stocks and bonds that is appropriate for your risk appetite, and a solid basis of emergency savings. Consider these ideas the cherry on top.
For those interested in the themes but who would prefer to use exchange-traded funds, sector-specialists from Bloomberg Intelligence in Asia suggests ETFs that can serve as good proxies. Contributor comments have been edited for length.
Hou Wey Fook
Chief investment officer, DBS Group Holdings Ltd
Look at demographics
China’s got a demographic advantage: Large populations are often associated with massive spending power. With service sectors making up 54% of total gross domestic product, the significance of China’s domestic spending cannot be ignored. This is evident in the economy’s better-than-expected GDP growth of 3.2% in Q2, which has delivered a V-shape recovery. The main sectors that will benefit will be businesses serving local customers or those catering to exports.
We remain positive on China equities, as they derive the majority of their revenue and earnings from domestic operations. For example, the 15 largest constituents in A-shares and the MSCI China Index obtained 97% and 92% of their revenue from their home market.
How to play it with ETFs: The Global X MSCI China Consumer Discretionary ETF has major holdings in the likes of JD.com Inc. (an online consumer sales company) as well as electric vehicle company Nio Inc. — Catherine Lim, BI Senior Analyst, Asia-Pacific Consumer Discretionary and Retail
Irene Goh
Head of Multi-Asset Solutions – Asia Pacific, Aberdeen Standard Investments
Recovery Focus
China was first in and first out of the Covid-19 crisis. The long-term growth potential of its consumer and tech sectors is intact. And with credit loss provisions likely having passed their peak, its financial sector could lead the next leg-up in growth.
There’s one market that is significantly undervalued: Hong Kong. Amid a growing trend of Chinese tech companies listing in Hong Kong — including Alibaba and Meitua — we foresee positive changes in the market landscape.
India’s sovereign bond market makes a compelling investment case. The sovereign bond curve from two to five years is extremely steep compared to other Asian sovereigns. The Reserve Bank of India’s quantitative easing program – called Operation Twist – keeps government bond yields of four years and beyond contained.
This leaves five-year government bonds in a sweet spot, allowing investors to benefit from roll and carry (a trading strategy where investors earn “carry” from the bond’s coupon and “roll” from its capital appreciation as the note slides down the curve toward maturity) and a potential RBI rate cut down the road.
Indonesian equities have plenty of room to play catch up after lagging behind peers. The earnings and macro situation has troughed and will continue to improve gradually from here with an effective vaccine.
In terms of allocation, in equities we recommend a higher allocation to Chinese stocks followed by an equal split between Hong Kong and Indonesian holdings. For bonds, we suggest an equal split between Chinese and India government bonds.
How to play it with ETFs: China’s eight largest commercial banks are among the Global X MSCI China Financials ETF top-10 holdings. The lenders may experience modest earnings recovery in 2021 as their credit-cost burden may become lighter after huge charges made in 2020. — Francis Chan, BI Senior Analyst, Asian Banks and Fintech
If you are betting on China tech companies returning to Hong Kong, KraneShares CSI China Internet Fund has 95% of its holdings in China tech. — Vey-Sern Ling, BI Senior Analyst, Asia-Pacific Internet
Toh Tat Wai
Head of Equities, Funds, ETFs and Discretionary Management, RBC Wealth Management Asia
Opportunities in 5G
5G technology is expected to generate $13.2 trillion in economic opportunities, create 22.3 million jobs by 2035 and become the new industry standard. The 5G opportunity is broad in scope and massive in scale, with its enhanced connectivity expected to bring benefits including precision of healthcare, higher productivity, real-time automation in factories, improved traffic flow and more.
We also have a positive market outlook for China A shares. Its economy has seen an astonishing recovery. At the same time, strong liquidity flows and the long-term need for foreign investors to increase their Chinese exposure make the outlook for China A shares positive. Investment opportunities will rise with ongoing efforts to put in place an open and transparent capital market system and facilitate the development of securities, funds and futures institutions.
How to play it with ETFs: First Trust Indxx NextG ETF invests only in companies that have a material commitment to 5G. It is more geographically diverse than some other 5G ETFs, with about 60% of holdings outside the U.S. — Ling
Srikanth Subramanian
Head – Private Wealth, Investments & Advisory, Kotak Investment Advisors Limited
Get Resourceful
Consider hedging your portfolio from the risk of impending inflation.
With the record fiscal and monetary stimulus post Covid-19, and the decade long underperformance of natural resources, there is a case for a pickup in commodities. There is a likelihood that fiscal stimulus could be inflationary compared to the last few years of monetary stimulus and most agricultural commodities have been in a decade-long bear market.
The story has been similar for other commodities. Copper prices, for example, had halved by March from a 2011 peak and have since bounced strongly while still about 30% away from prices seen 10 years ago.
For an aggressive investor, we suggest allocating about 65% to 70% to domestic equities, 10% to 15% to international equities, 15% to fixed income and other alternatives and 5% to gold.
How to play it with ETFs: Metal companies with exposure to China could stand out from peers due to government infrastructure spending. For broad-based agriculture, consider the VanEck Vectors Agribusiness ETF with the apt ticker MOO — Yi Zhu, BI Senior Analyst, Asian Metals and Mining; Alvin Tai, BI Analyst, Global Agriculture
David Smith
Chief investment officer at Smith & Tan Asset Management Pte. in Singapore
Go Cyclical and Small
Small cap stocks are as cheap as ever, and stocks of companies that rise and fall with broader economic trends are cheap as well.
Look at shares of companies involved in industries that follow economic cycles — like metal miners and cement makers — and those of smaller firms that are not involved in the red-hot technology sector.
Stocks tied to these themes will rise for two main reasons: One, they are cheap versus their own history and relative to many other sectors. Two, governments in the region are likely to anchor the spending needed to lift the region’s economic growth out of the Covid-19 shock.
How to play it with ETFs: The iShares MSCI AC Far East ex-Japan Small Cap UCITS ETF holds over 1,200 small companies across Asia, with holdings in industries from semi-conductors to chemicals. The expense ratio is 0.74%. — Patrick Wong, BI Senior Analyst, Asia-Pacific Real Estate
Source:- Bloomberg
Source link
Related
