Top stock pickers seek gains in China energy, Japan real estate
ASIA’S top-performing fund managers are seeking opportunities in battered Chinese stocks and turning selective on the hot artificial intelligence theme as the region comes off a tough year.
The MSCI Asia Pacific Index hugely underperformed global peers in 2023, with its 9 per cent rise less than half the S&P 500’s advance. The global backdrop now looks more favourable. The Federal Reserve’s much-anticipated interest rate cuts are poised to add tailwinds while expectations are growing for Chinese equities to bottom out.
Still, Beijing’s policy uncertainty and a potential rise in volatility around elections in India and Taiwan make for a tricky investment landscape. The MSCI’s regional benchmark slid about 2 per cent in the first week of 2024.
Looking ahead, here are some investment ideas by market-beating money managers focused on Asian equities.
Seek China value
Bao Wuke, one of China’s best-performing fund managers, is positive on the country’s energy firms and medical equipment makers.
His Invesco Great Wall Value Boundary Flexible Allocation Mixed Fund returned 16 per cent in 2023 to beat more than 95 per cent of its peers, according to data compiled by Bloomberg. Bao’s performance stands out in a year when the CSI 300 benchmark fell 11 per cent to post a third annual decline.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The nation’s energy sector has “high business barriers and more reasonable valuations”, while the medical device market presents “huge room for growth”, said Bao, a fund manager at Shenzhen-based Invesco Great Wall Fund Management.
“In the early stages of transition from conventional energy to renewable energy, there will be an underinvestment in conventional energy which means new supply in this area will be limited,” he added.
His top energy holdings included CNOOC and Zijin Mining Group as at end-September, according to its factsheet. Both rallied more than 20 per cent in 2023. Bao said he took profit on media stocks in the second quarter following the artificial intelligence frenzy.
Selective AI bets
After a year of blazing gains for everything AI, the Allianz Global Investors Taiwan Technology Fund is turning more selective on chip-related stocks.
The fund returned 72 per cent last year to outperform 95 per cent of peers, according to Bloomberg-compiled data. Its latest factsheet shows top holdings included eMemory Technology – up more than 80 per cent in 2023 – and Taiwan Semiconductor Manufacturing Co.
With new competitors joining the AI race, suppliers with higher entry barriers such as chip design service providers and component makers for heat spreading technologies and high-speed printed circuit boards should outperform, said manager Benson Pan.
“Suppliers for custom chips have strong visibility to win orders from hyperscalers or EV (electric vehicle) companies through 2025,” Pan said, referring to US big tech’s demand for such products.
Pan is turning more cautious on assembly firms and equipment manufacturers. Overall, “AI will be the long-term trend but the share price rise has been crazy last year”, he said.
Japan property, chemicals
Managers of the Arcus Japan Fund, which delivered a 40 per cent gain to beat 98 per cent of peers, are holding on to an overweight stance for real estate and chemical stocks as valuations don’t fully reflect their potentials.
The sub-gauges of chemicals and real estate stocks each rose more than 20 per cent last year, marginally underperforming the Topix Index’s 25 per cent rally.
Fundamentals for the real estate sector are “quite sound” with vacancy rates, demand, and funding environment all supportive, said investment managers Mark Pearson and Ben Williams. “Many Japanese companies are leading players in specialty chemicals used in a variety of high technology industries such as semiconductors, medical and electric vehicles.”
The fund’s November factsheet showed their top real estate holdings included Mitsubishi Estate and Sumitomo Realty & Development, both of which saw double-digit gains last year.
India industrials
India’s stock market value surpassed US$4 trillion in December as investors kept ploughing money, lured by solid earnings and its growing standing as an alternative to China in the global supply chain. China’s poor performance added to its appeal.
“We continue to be positive on the entire gamut of capital goods segment,” said Samir Rachh, whose Nippon India Small Cap Fund returned 50 per cent last year, beating 88 per cent of comparable funds in data compiled by Bloomberg.
“We feel the capex cycle in India is just about to turn for long and also this sector can benefit big from China plus one where in global companies will start buying more from Indian companies.”
Top holdings include Bharat Heavy Electricals and Apar Industries. Their shares more than doubled last year.
Asian minnows
Ruchir Desai, a fund manager at Asia Frontier Capital, expects the rally in Asia’s frontier markets to extend into 2024 thanks to growing macro stability, with larger economies like Vietnam playing catch up.
The equity benchmarks of Pakistan and Laos – a rare investment destination for many due to the markets’ small size and volatility – ranked among the world’s top five gauges in 2023, notching gains of more than 50 per cent. Vietnam rose 12 per cent.
“My biggest bet for 2024 is the economic recovery story playing out in Bangladesh, Pakistan, and Sri Lanka as these markets will benefit from greater political stability, macro-economic stabilisation, easing monetary policies and a robust recovery in earnings,” said Desai.
His AFC Asia Frontier Fund returned 23 per cent in the 12 months through November to beat 98 per cent of peers in data compiled by Bloomberg.
Share with us your feedback on BT's products and services
