Vicki Chi, Robeco
Although Asian equity valuations are at least 20% cheaper than global markets currently, Robeco expects the gap to narrow over the years coming, generating high returns for investors.
“As a long-term investor in Asia, we believe the discount is going to narrow. A few drivers include improving corporate returns, better earnings outlook, and most importantly the long standing governance discount is looking to slowly diminish, ” said Vicki Chi, Portfolio Manager, Asia Pacific Equities at Robeco.
Despite a stellar year in earnings in 2021, Chi believes input price inflation will weaken the immediate earnings outlook, but then recover.
In the rising inflation environment, Chi believes there is still abundant liquidity in the Asian market.
Apart from traditional commodities, Robeco is also expecting strong pricing power among technology commodities
“We see technology commodities as a new concept and we believe that companies with pricing power face increasing structural demand, and will perform very well in this inflationary environment,” said Chi.
Even so, this may not exactly be the case in China due to tightening regulations.
“We are structurally positive on China’s capital markets, but we do expect leadership for this market to shift away from the internet to other sectors.”
Meanwhile, since Asia is still in a very early phase of green investing, Chi believes this provides a key alpha driver for investors.
She urged investors to “take action in sustainable investing right now”, especially to invest in names under the energy transition theme.
“Energy transition is a long term thematic in Asia. It is not confined to one or two sectors and has a profound impact on various sectors and provides cyclical and structural opportunities for investors,” she said
Despite recent spiking valuations for sustainability thematic stocks such as those linked to renewable energy, the portfolio manager remains optimistic and believes these stocks still trade at attractive valuation.
Chi believes Asian many sustainability thematic stocks remain undiscovered, as global investors have yet to identify which companies in the region are involved.