Axa remains confident about Asia secular trends

“It is accelerating trends that were already underway,” Simon Weston, senior Asian equities fund manager at Axa Investment Managers, said at a media briefing on Tuesday.

He highlighted the increasing role of e-commerce, which Asia is adopting more rapidly than anywhere else in the world, rising investment in automation and robotics, and a move towards cashless societies facilitated by Fintech.

“Technology is increasingly taking a central role in the region’s working activities and living habits,” said Weston.

In addition, the coronavirus pandemic has focused people’s attention on healthcare, where both private and public spending will continue to rise, and on food safety and security, he said.

Other asset managers, such as Value Partners and SSGA have also recently pressed the case for China and Asian “new economy” stocks, while data from Morningstar showed that Hong Kong investors deserted fixed income products to pour money into thematic funds, including technology and healthcare in the first quarter of this year — although they preferred funds with international rather Asia investment mandates.

So far this year, the MSCI AC Asia Pacific ex-Japan Index is down 13.36%, compared with a 10.26% fall for the MSCI AC World Index and only a 6.64% decline by the S&P 500, according to FE Fundinfo data.

Meanwhile, geopolitical tension and competition between the US and China have escalated rather than subsided during this period of shared crisis, which will lead to a further unwinding and reorientation of supply chains, according to Weston.

The trend is most evident in the decisions of several multinational corporations to shift production from China to lower-cost countries such as Cambodia, India and Vietnam, but political anxieties and concerns about the security of supply chains are also influencing strategies.

This will provide further investment opportunities for growth, but Weston emphasised that Asia is also an increasing source of equity income, “with the second least vulnerable dividend payouts expected this year, after North America”.

Q1 impact

Weston is the lead manager of the Axa WF Framlington Asia Select Income Fund, an equity fund that took a hit on performance when Asian markets plunged in early February —  and is still struggling to recover.

It has posted a -4.70% three-year cumulative loss, underperforming its benchmark MSCI AC Asia Pacific ex-Japan Index (3.85%) and its sector average (-2.04%), and with annualised volatility of 17.09%, which is less than its benchmark (17.52%) but more than its peers (16.85%), according to FE Fundinfo data.

When Weston spoke to a media briefing in mid-February, the fund’s three-year cumulative return was comfortably positive at 17.80%, and he was confident that the effects of the virus were likely to be short-term and should not derail the “secular growth story in the region”, underpinned by advantageous demographics, an expanding middle class and increasing urbanisation.

Although he remains committed to the “secular growth story”, Weston is now less sure that the impact of the coronavirus crisis will be quite so short-lived.

“The pandemic will continue to cause significant economic and social disruption, even as Asia seeks to recover from the effects of lock-down,” he said.

The fund’s most recent factsheet shows a substantial underweight to China, but overweight allocations to Australia, Hong Kong and Singapore.

Axa WF Framlington Asia Select Income Fund vs MSCI AC Asia Pacific ex-Japan index and sector average

Source: FE Fundinfo. Three-year cumulative returns in US dollars.