Despite continued concerns around the global impact of coronavirus, according to data from Last Word Research, there continues to be plenty of appetite for Asian equities.
Over the year to 17 March, funds in the IA Asia Pacific (ex Japan) sector have suffered as global markets have tumbled, registering a collective loss of 16.27%. However, recent research reveals more than one-third of UK fund selectors are looking to buy the region during the coming 12 months.
While there has been a slight uptick in the number of sellers, this might not be completely unexpected, with the research being carried out in the last two weeks of February and first week of March. Indeed, Roderick Snell, manager of the Baillie Gifford Pacific Fund, told delegates at a Portfolio Adviser roundtable on Asia held prior to lockdown that based on his bullishness on the region, he has recently been topping up his own Isa and Sipp.
“The difference in valuations between emerging Asia and the developed world on a price/earnings basis has not been this wide since 2003,” he said. “In conditions like this you normally get the biggest bargains and what we see now is a genuine buying opportunity.”
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Active management to pick Asia’s winners and losers
Sophie Outhwaite, head of equities at Stanhope Capital, notes that China and Asia ex Japan have thus far proved relatively resilient in the face of Covid-19, which complicates the group’s bullish stance on the region.
She says: “Having previously felt likely to add to Asia ex Japan through the course of the year, it seems more likely we will consider trimming in the short term to reallocate to harder-hit markets in an effort to rebalance portfolios.
“The coronavirus and various governments’ reactions to it have had a huge impact on the investment landscape. The near-term outlook for economies looks awful but, ultimately, monetary and fiscal stimulus should be good for global economic growth in 2021 and positive for emerging markets.
“The long-term case for Asia ex Japan’s consumer story is intact. Active management is essential, owing to the heterogenous nature of the countries making up the region. There’ll be winners and losers in both the old and new economy, with all companies facing new challenges as a result of the pandemic.”
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China enters the coronavirus recovery phase
Nick Wood, head of fund research at Quilter Cheviot, notes we are living in uncertain times, with extremes in stock market volatility over recent weeks. However, he says Quilter Cheviot remains overweight Asia and emerging markets, with a view to the longer-term drivers of the Asian region.
“We continue to see opportunities arising from the growing middle classes and urbanisation across Asia, but especially within China,” Wood says. “With both of these trends comes a higher demand for new and better quality products from consumers, as well as the need for increased and improved infrastructure, transportation and leisure services.”
He adds: “These are long-term structural changes that will continue to play out, albeit at a slower pace for the meantime, with a return to normal depending on how long it takes for the virus to be fully contained and life to return to normality.”
While Wood argues it is too early to determine the outcome of the coronavirus at this stage, he notes China is currently in recovery phase, with the number of new cases falling dramatically from its peak, employees beginning to go back to work and factories ramping up production once more.
“Another driver over the long term is the inevitable increase in the weighting China has within global indices, with this a tailwind that passive investors will follow over time,” he adds. “Investors may want to hold off investing now or dripfeed their money in gradually, but our leading pick within Asia today is Veritas Asia, a fund that reflects our long-term views on the region, and a manager who has consistently demonstrated his skill investing in the region.”
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