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Disruption driving Asian equities

In a post-Covid Asia, capital investments in smart infrastructure, digitisation, automation and environmental imperatives will shape the equities landscape, says Pinebridge Investments.
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The longer the impacts of the pandemic linger and that economic activity stays subdued, the stronger the trends toward automation, digitisation, environment and healthcare imperatives will grow and steer investment opportunities.

“While today the pandemic hamstrings some economies and companies, Asia is likely to remain a fast-growing region and will be well-anchored into the future,” said Siddhartha Singh, investment director, Asia equities at Pinebridge Investments in Hong Kong.

In particular, pent-up demand for goods coupled with a digitisation-led impulse buying seem to have been responsible for keeping Asian equity markets resilient during the pandemic.

The former has resulted in extremely low levels of inventories, which in turn boosted manufacturing activity and fuelled demand for smart capex, such as on automation and machinery, Singh explained.

The latter, he added, has led to a notable increase in digital penetration as firms adjusted to changing customer behaviour, along with increased working from home and demand for productivity-enhancing and labour-saving technologies.

Seeking out returns

Another source of Asia’s stability is the extent of regional integration. Indeed, the large share of intra-regional trade out of the region’s total suggests that stronger parts of Asia – notably North Asian economies – can serve as a buffer against a slowdown in the rest of the region. As a result, they can help drive the overall regional recovery, said Singh.

Such an environment demands a robust investment philosophy that seeks to uncover quality rather than just ride the trends.

This is required as both digital leaders and laggards are stepping up investments. “The former want to extend their lead, while the latter want to catch up,” said Singh.

Real investment in information processing equipment has been generally robust throughout the pandemic, he explained. Moreover, new IT investments in digital areas are forecast to increase, to provide a tailwind for some of the region’s IT companies.

“Once again, we believe being on the side of disruption with the right selection of companies will be the key to future success,” added Singh.

Mainstreaming the environment

Over the long term, environmental imperatives should be on the radar of investors. “We believe this will be among the strongest forces to drive growth and investment opportunities in Asia,” he added.

For example, China, which accounted for 27% of the world’s emissions in 2019 has pledged to reach net-zero carbon emissions by 2060. Such an ambitious goal will force sweeping changes in the way companies operate in China. South Korea and Japan are in similar situations.

Further fuelling this trend is the fact that the less developed parts of the region have also added the environment to their playbook. “The high demand for energy in Southeast Asia to sustain its rising economies is beginning to reshape renewable energy regulations,” said Singh.

Vietnam, for instance, is drafting a new power development plan, while the Philippines is implementing renewable portfolio standards and a green energy auction – expected to support renewables growth. Indonesia, meanwhile, which had a long history of being a challenging environment for renewables, has an upcoming renewable energy law that could led to bold changes.

“As some of the world’s biggest companies and deepest-pocketed investors line up trillions of dollars to finance a shift away from fossil fuels, opportunities to participate in newer areas such as renewable food chains, storage, grids, fuel cells, eco-friendly mobility, and so forth abound,” explained Singh.

Part of the Mark Allen Group.