In considering the Asian equity market, attention is automatically directed towards the continent's largest economy - China. And whilst China has attractive qualities, and is growing at a rapid pace, often smaller and less developed markets are forgotten about.
In part 1 of this 3 part collection, I reached out to some of Australia's biggest Asian equity fund managers to acquire information about the less spoken economies, including Vietnam and India. They give an analysis on an under-appreciated market in Asia, detailing the country's current state and their growth prospects over the medium to long term.
Responses come from:
Vietnam is ticking all the boxes
Dr Joseph Lai, Platinum Asset Management
While China is the largest economy in the Asian region and dominates attention, there are opportunities throughout the region. Asia has a fascinating range of investment opportunities at all stages of development, from the very basic to highly advanced.
In general, the region is blessed with a young population. Each country has been investing in infrastructure and technologies that will be at the heart of the region’s robust economic growth.
One of the fastest-growing economies is Vietnam. It is growing at around 6-7% a year. Global companies, like Samsung Electronics (a stock we have held for many years), have been investing in Vietnam in order to expand their manufacturing capability at lower cost. Foreign directed investment (FDI) has been robust, at around a high single-digit percentage of GDP. We are increasingly seeing more and more electronics, textiles or sneakers being produced in Vietnam. It is one of the few economies in the world that is still experiencing trend double-digit export growth.
While its stock market remains small and relatively illiquid, there are some long-term opportunities. We previously directly owned the largest company in the market, Vinamilk. After making great returns, our major position in the country today is via a closed-end fund that we acquired at a discount, giving us exposure to a portfolio of domestic businesses, including banks, real estate and consumer companies. This is similar to the idea of buying listed invested companies (LICs) at a discount on the ASX, which can be a profitable strategy for a patient investor, if able to pick up any discount closing in addition to any underlying asset performance.
All roads lead to India
Joohee An, Mirae Asset Global Investments
Other than China, we believe India is an underappreciated market that still holds attractive investment opportunities and great potential. Since March’s sharp global market sell-off we saw record outflows in FII’s and investors remaining bearish on the Indian market. We believe the underperformance in the market on the back of COVID-19 has been a good opportunity to add to high conviction names.
Source: Bloomberg, RBI, RIMES, MSCI, Morgan Stanley Research as at June 2020.
We maintain our positive view on the medium to long term outlook of India’s consumption story, considering there is still a very small proportion of consuming class, i.e. a big opportunity as 'aspirers' become consumers. One of the critical drivers for the rising penetration is urbanisation. Urbanisation in India has increased by ~800bps from year 2000-19; this trend is also expected to continue rising. The population density in large cities (>1mn population) have also increased from 35 million in 2000 to almost double at 60 million in 2020. The working-class population (aged 15-64) reached 51% in 2019 compared to 35% in 2000. Household annual income of >US$2,500 is also seeing an increasing trend. The backdrop of new income earners in a highly populous country as urbanisation rate and income level rise provides a structural growth story for the under-penetrated sectors such as FMCG, health care, and consumer banks. We believe that the fundamental impact from the COVID-19 is minimal from long term perspective.
In addition, policymakers have looked to macro stability over growth, taking the opportunity to introduce structural reforms in land, labour, agriculture, and investments. This should benefit growth in the long-run as the reforms provide a stable foundation to support the growing consumer story in India.
Get the inside line on Asian investments
The global economy has experienced a massive shake up this year, so where does that leave Asia? Joohee An and Dr Joseph Lai will be back in the second part of this Collection to provide their outlook for the Asian markets and economies. Hit the 'follow' button below to be notified when its published.
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good write up Bella.