Investing in the world’s best structural growth story
As a region, Asia represents one of the best long term structural growth stories in the world. I recently published a comprehensive article outlining our views on the outlook for Asian markets. Following a positive start to 2019 for Asian markets I've highlighted a few of the key points below:
- Asian markets corrected significantly in 2018 but have already begun to rebound in 2019 on trade war de-escalation and a dovish Fed;
- Growth remains robust and valuations are very compelling in Asia, particularly in China;
- Funds flows are returning to Emerging Markets and
- A weak AUD is good for absolute returns in an unhedged Asia portfolio like EAI.
Four reasons to invest in Asia now - video
1. Emerging markets and Asia underperformed significantly last year
A lot of that has to do with the path of the Federal Reserve interest rate hikes, but as you may have known from watching the news, the Fed is now on pause, and this is a very positive signal for emerging markets and for flows back into emerging markets and Asia.
2. The trade war is de-escalating
There may be a resolution on the horizon. Last year, saw tit-for-tat escalation between China and the U.S. imposing different levels of tariffs on significant amounts of goods. That seems to be over, and now we've moved towards a negotiated outcome. So again, as you may have heard in the news, Chinese representatives have gone to the U.S., American representatives have come to China, and they are hammering out a deal that has to do with reducing the deficit, protecting IP, and enforcing the deal that they do put in place.
Hopefully some time before, in either March or in April, a deal will be resolved, and this will be very positive for Asian equity markets, because that's one of the things that weighed on Asia last year.
3. China is stimulating its own economy
We saw on Friday a very big number for total social financing, that's the amount of loan growth and other financing in China. We've seen infrastructure spend, we’ve seen cuts in the reserve rate requirement, and other fiscal and monetary stimulus that China is doing to counter-effect the negative impact of the trade war last year.
So, if you get those two things coming together, in terms of a resolution in the trade war and China stimulating its own economy, 2019 is shaping up to be a very good year for China.
4. Technology is on the rise
Last year was a difficult year for technology globally and in Asia. For one thing, there was rotation out of growth stocks like the technology sector, into value stocks, but that is starting to reverse. Secondly, Apple had some issues last year, particularly with volume growth, and that hurt the whole Apple supply chain. And then, thirdly, there were issues with FAANG, and this caused multiple compression, which hurts the Asian internet stocks, like Baidu, Alibaba, and Tencent, referred to as BAT.
All these things are reversing in 2019. Right now, tech is one of the largest overweights in Ellerston Asia Investments. The largest position in our fund is Tencent, the second largest is Alibaba, and also have overweight positions in TSMC and Samsung. So, in terms of the mega cap Asian stocks, we are positioned there.
I think 2019 is shaping up to be a very positive year for Asian markets. With that, happy investing.
Ellerston Asian Investments currently has options on issue. We would like to remind holders of Ellerston Asian Investments Options (ASX:EAIO) that these options expire at 5pm AEDT on the 28th February 2019. For further information on these options and how to exercise please click here
1 stock mentioned
Mary is a Portfolio Manager for the Alphinity Global Fund and Alphinity Global Sustainable Fund. She has been investing in global markets for over 20 years previously working for Ellerston Capital, Oaktree Capital and Soros Fund Management. Mary...