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
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
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
