Man GLG’s Andrew Swan has warned investors not to take Asia’s high predicted economic growth as evidence that its equity markets will perform strongly in the year ahead.
In the latest Portfolio Adviser video interview, the manager of the Man GLG Asia ex Japan equity fund says the view that Asia is a great opportunity for investing simply because it has higher rates of economic growth does not hold true all of the time.
The IMF has predicted China’s GDP to grow 8.1% this year and India’s is even higher at 11.5%. Overall, the emerging and developing Asia region is tipped to grow 8.3% in 2021.
But Swan notes the past decade has shown that emerging economies have continued to grow but their equity markets have severely lagged.
“You don’t invest in Asia simply because it has higher rates of economic growth,” he says.
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Swan says the real driver of equity returns is corporate profitability and particularly what drives alpha is relative earnings revisions. “The ability to identify where that corporate profitability comes from and the surprise in particular to corporate profitability growth is really how you should be thinking about returns in the region.”
Swan says China has been the primary driver of returns in the region for some time but because of changes inside the economy, evident in booming sectors like technology and healthcare.
“Really, it has been a very narrow market within certain companies and sectors.”
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Swan also thinks Asia is at an inflection point in that other areas, especially South East Asia, are poised to usurp China as the region’s leader because of strong corporate profitability growth.
He also touches on what a weaker dollar means for Asian countries.
Watch the video above for more and find more PA videos here.
