Fan said China’s massive One Belt One Road initiative will bring investment opportunities across the region. She pointed to China’s investments via the maritime route of the project, which passes through Vietnam, Thailand, Malaysia, Sri Lanka and India and eventually rejoins another route in Central Europe.
As infrastructure investments will be the major part of the project, companies linked to urbanisation, property development and construction services are likely to benefit in the medium-to-long term. Financial services will also benefit by providing cross-border financing tools for various infrastructure projects, she said.
Outside of the belt-and-road initiative, Asian countries are expected to make huge infrastructure investments, reaching $26trn through 2030 or $1.7trn per year, according to a report from the Asian Development Bank.
Fan believes such strong infrastructure needs will combine with the synergy created by the belt-and-road initiative to drive the further investment opportunities in countries such as Indonesia and Malaysia.
Middle class boom
Fan is bullish on the consumption sector, which she expects to benefit from a growing middle class experiencing rising economic growth.
She expects economic growth in Asia ex-Japan to remain at 6% this year and accelerate to 6.2% in 2019, driven by China and India. Growth in these two big economies she believes will support the ongoing expansion of the middle class. “By 2023, the population of middle-class consumers will reach one billion globally, 90% of which is from Asia. This group of consumers will include tech-savvy millennials who are willing to spend,” Fan added.
She said the spending power of the middle class in the region will drive the demand for discretionary consumption. The beneficiary sectors include companies that provide entertainment, quality education, healthcare and innovative financial products and services.
Apart from China and India, Fan is also overweight equities in South Korea and Singapore.
Concern over geopolitical tension between South and North Korea is minimal. “The geopolitical tension in the region became calmer recently as South and North Korea have initiated the first official talks in two years. South Korea and China have also resumed bilateral ties in economic cooperation,” she added.
South Korea’s economic growth will continue to be driven by the tech sector this year. “We expect the large-cap tech firms to generate stable corporate earnings growth,” she said.
Hong Kong neutral
Fan believes the new US Federal Reserve chairman will add volatility to Hong Kong’s equity market and she maintains a neutral rating.
“Hong Kong’s stock market is highly sensitive to external situations. In the first quarter, we will see higher volatility due to uncertainty with the US Federal Reserve, such as the transition of the board of governors.”
Fan expects H-shares (Hong Kong-listed Chinese firms) and mainland-listed companies will gain at least a 10% return in 2018, versus an average of 7% in Hong Kong equities as a whole.
In general, the investment landscape of 2018 will largely differ from that of last year, she said.
“The global markets have moved on from the initial stage of the bull market into more mature and slower growth. Unlike last year, there will be an obvious differentiation in returns among asset classes, sectors and geographic locations. Therefore, A more active strategy is expected to perform better than last year,” Fan said.
To achieve the strategy, she said investors will have to look closely at how technology is bringing changes to the global economy.