Johan Jooste, chief investment officer at Bank of Singapore
Although technology stocks were profitable in 2017, they have reached high valuations, Jooste said at a media briefing on Friday in Hong Kong. As the central banks start tightening monetary policies and market volatility increases from a historic low, the technology sector is likely to be negatively impacted.
“Following a better-than-expected equity market in 2017, [in 2018] we have to be careful on overvalued sectors,’ he said. ” We look for the ones that are undervalued and those investors missed out on. This year might be the comeback of value investing.”
Tech beneficiaries
Jooste said investments in technology can be done in a different way by focusing on industries that benefit from applications of technology, rather than on tech companies.
“Healthcare is one of the areas that applies high level of technology, which would generate higher efficiency and profitability,” he said. While this is true globally, China is a particularly worth paying attention to, he added, due to its demographics and fast economic growth.
In an earlier interview, Fan Cheuk-wan, HSBC Private Bank head of investment strategy in Asia, stressed the potential in China’s healthcare sector stemming from a growing middle class and its increasing spending power, which she believes will drive the demand for pharmaceutical products and high-quality healthcare services.
The financial industry is another sector Jooste highlighted as a beneficiary of new technologies. “Inside of financial industry, there is a growth in robo-advisory services, which require much more machine learning and computing power,” he said.
Financial services will also benefit from changing demographics, he added. “Today, the younger generation operates smartphones and interacts more electronically,” he noted, adding that technology is becoming a key element of banking services.
China is evolving from a manufacturer to a brand provider, Jooste said. He expects that in a decade the leading global tech brand names, such as Google and Apple today, will be Chinese.
In June this year, China’s A-shares will be added to the MSCI emerging market indices. Jooste expects that the inclusion of a limited portion of stocks, as initially planned, may not have a significant market impact in the near term. But he expects China’s contribution to the index to grow over time, given the scale of the country’s economy.
Tencent, China’s flagship tech firm, has had a strong run and like many of China’s new economy companies, is considered overvalued.
Tencent’s three-year performance against Hang Seng Index
