Gian Plebani, UBS Asset Management
A resurgence in coronavirus cases in some parts of Asia should not dampen investor appetite for specific themes, markets and sectors set to benefit from the region’s growth trajectory in the medium term.
“Asia continues to be a sweet-spot for global investors. It is still the fastest growing part of the world, offering emerging markets-type valuations alongside developed markets-style volatility,” said Gian Plebani, a portfolio manager at UBS AM.
This makes for compelling potential risk-adjusted returns in comparison with other global assets, he told FSA.
The key opportunities across Asia, including in China, stem from several sources, including the growing middle class population and technology leadership, especially in East Asia.
Clear appeal in China
From his perspective, China generally continues to offer investors a lot of promise – if they know where to look.
More specifically, its earlier – and strong – economic rebound compared with global peers has positioned it in a latter stage of the recovery cycle. As a result, authorities will likely adopt a more measured approach to ongoing policy support.
Yet China still remains the most attractive growth area in the world, so asset prices should reflect this, said Plebani. “Investors should stay invested in China.”
Plebani manages the the Luxemmbourg-domiciled $3.36bn UBS China Allocation Opportunity Fund, a multi-asset China product. It has generated a 29.16% three-year cumulative return, compared with an average 34.77% by the mixed asset – Asia Paicific category of funds available to Hong Kong retail investors, according to FE Fundinfo.
Among equity sectors, he likes financials, along with cyclicals like materials and industrials that are well-placed to profit from the global recovery.
High yield fixed income is also attractive to UBS AM. Supporting this preference are expectations of steeper yield curves in the wake of reflation, in turn requiring an underweight position in duration.
“This is fuelling our strong preference for high yield, especially the type of shorter-term duration that is found in Asia, including China,” said Plebani.
Finding pockets of Asian growth
Across the rest of Asia, meanwhile, UBS AM sees Japan as an attractive investment destination, based on current valuations.
Beyond its latest wave of Covid-19 cases, Plebani said the medium-term outlook for Japan reflects a market that is prone to profit from a global recovery, given it produces many industrial goods that a growth-oriented economy demands.
At the same time, central bank measures in India and Indonesia have already proved effective in supporting domestic economies. “Beyond the shorter-term risks these countries face, there is recovery potential over the medium term,” added Plebani.
He suggests investors to look for key themes in target countries. In addition to demographics as a key trend to support the prospects for Asia’s growth story, ‘premiumisation’ creates appeal for a range of consumer goods in line with the region’s rising middle class.
Further, technology leadership offers a strong advantage in Taiwan, South Korea and China compared with other parts of the world. The shortage of semiconductors, for example, puts Asia in pole position to service global demand.
In short, added Plebani, the focus should be on positioning portfolios in economies that are in the early stages of the recovery cycle. “The laggards in performance in 2020 will outperform this year from a financial returns perspective.”
