Are Asian equities the way for investors to unlock diversification & growth?

Asia Pacific presents investors with a golden opportunity for growth and long-term returns, whilst helping to chart the course for sustainability on a continent where the impacts of climate change are seen and are being felt.

CAMRADATA’s latest whitepaper, ‘Asia Equity’ focuses on opportunities in Asia – particularly in China, which has successfully weathered Covid-19, and it considers the long-term investment horizon, including the role ESG must play.

The whitepaper includes insight from guests who attended a virtual roundtable hosted by CAMRADATA in May, from firms including Guinness Asset Management, Allfunds, Quilter Cheviot, UNA Seguros, Willis Towers Watson and Federated Hermes International.

With life and financial stability returning to normal in China, and its target of being net zero by 2060, the opportunity for investors to unlock returns in China’s A-Share market whilst driving the ESG story – where standards are low relative to the rest of the world – is now.

The report also discusses India and Japan, despite the macro picture differing vastly from China as they continue to battle rising Covid-19 rates, which is hitting both countries hard and impacting the financial markets.

Sean Thompson, Managing Director, CAMRADATA said, “With China well on the road to recovery, but Japan and India still struggling – we discussed the long-term picture for investors.

“India presents a key opportunity – it is one of the world’s oldest stock markets yet only 10% of listed companies have a market capitalisation of US$200 million or more in stark contrast to 80% of China’s.

“Our panel discussed investment trends in Asia, including the key ingredient of engagement. Whilst there is work to be done to improve standards, if engagement brings better ESG outcomes, then that is a vital additional source of alpha for active managers.”

The CAMRADATA roundtable on Asia asked buy-side representatives which types of products are proving most popular, with one fund manager noting two: funds across the whole region that integrate ESG, and Chinese equity.

They also discussed key trends in the region including what criteria successful Asian equity managers demonstrate. The discussion then focussed on China Mobile, an interesting story and journey, as for all telecom stocks around the world.

The panel also looked at ESG considerations and their views on index tracking Asian equities. The panel also talked about the performance and behaviour of their strategies during the ups and downs of 2020 and gave their views on the nascent return of Value.

Key takeaway points were:

  • On China, one panellist noted increased exposure to dedicated A-shares in China, measured top-down and by fund flows. This trend was also acknowledged by another panellist who said more and more managers are asking about China.
  • Another said many institutional investors have divided the world into Developed and Emerging Markets. Over the last three to four years, however, they have been trying to close the gap created by China’s growth.
  • On ESG, there was a perception that investors and companies in Asia lagged on implementing ESG policies but in fact they were catching up with other regions of the world fast.
  • Asian companies are not at the same standard as peers in Europe, but more and more asset managers are pushing invested businesses to improve and make changes to their corporate governance.
  • Growth has been dominant for most of the last decade. The challenge for manager selectors is that this cycle has lasted so long that there are not that many Value managers who have been in place for eight years or more.
  • One panellist said there were not many other stocks offering the 7% dividend yield that China Mobile could. But since the company has been added to a list of sanctioned Chinese businesses by the US government, however – with a deadline in November this year for US persons to cease investment in the company there is much uncertainty.
  • Looking at active vs passive investing, one panellist said that personally they believed passive was not the approach for Chinese markets because it is not a very rational market and is dominated by retail investors.
  • Another said the salient questions were how efficient you think the market is; and how representative the index is of the underlying market.
  • The roundtable concluded with one final remark regarding “boots on the ground.” One manager said many fund selectors want to know that asset managers have a physical presence in Asia. Asia is a big place. India is not China; Hong Kong is not the Philippines; you cannot be everywhere at once.
  • They noted that the CEOs of most Asian companies come to London regularly as part of their job and it is a good idea where possible to meet and interview them.
  • They added there might be value in visiting factories and talking to other financiers or suppliers or staff. But they doubted one would glean that many more insights by this method, especially for larger, established companies, concluding that the greater value is coming up with a plan that works and sticking to it.

To download the ‘Asia Equity’ whitepaper click here