Geopolitical competition between the US and China, as well as “going green” have been identified by Aberdeen Standard as key investment drivers in Asia equity market for the rest of this year and 2022.
So far this year, countries and regions in Asia that have managed the Covid-19 situation best have been rewarded by stronger performing equity markets, compared with the MSCI Asia Pacific ex-Japan index, Pruksa Iamthongthong, senior investment director of Asian equities at ASI, told a recent media briefing.
Taiwan, Australia, Hong Kong and Singapore have been doing well, while India’s stock market has also performed strongly despite the ongoing Covid-19 situation, she said.
Among sectors, industrials, materials, financials, and information technology have largely driven outperformance, while consumer discretionary stocks have been relatively weaker, due to the increased regulation in the internet space in China.
Going forward, Iamthongthong identified several areas with further potential, including the semiconductor industry, which is benefiting from rising spending on research and development (R&D), partly in response to worsening Sino-US competition.
“The US has increased its R&D spending just to make sure they maintain the lead in innovation and technology,” she said.
What this mean for Asia is that there is likely to be a shift from a globalised semiconductor supply chain to one that is going to be more regionalised, Iamthongthong explained.
“Although investment into Taiwan’s semiconductor industry will continue, some funding investment will be diverted to the US. [Meanwhile]we are going to see a move towards more self-sufficiency in the semiconductor supply chain in China,” she said.
“This is a structural growth trend that offers a long-term investment prospect.”
In terms of the race for “green supremacy”, Iamthongthong expects opportunities will be generated from the renewable energy space, such as wind and solar, and especially in China.
In addition, the penetration rate of electric vehicles (EVs) in China is increasing, and the costs of EVs continue to come down, approaching parity with conventional vehicles.
“We are also seeing some spillover [from EVs] into other industries, such as the industrial automation sector,” said Iamthongthong.
Iamthongthong manages the $3.2bn Aberdeen Standard Asia Pacific Equity Fund, which has posted a three-year cumulative return of 43.98% in US dollars, outperforming its benchmark MSCI Asia Pacific ex-Japan index (35.75%) and its sector average (34.59%).
The fund’s top five holdings are Taiwan Semiconductor Manufacturing, Samsung Electronics, Tencent AIA and Alibaba, and its main country exposures are China, South Korea and Australia, according to its latest factsheet (30 June 2021).
Other key investment themes Iamthongthong identified include the rising affluence in Asia which is leading to fast growth in premium consumption in areas such as education, financial services and food and beverages.
Her colleague Nicholas Yeo, head of China equities, expressed similar views, he believes that the structural drivers of Chinese consumption remain intact, and the nation’s generation of aspirational millennials will continue to buy high-quality goods and services.
Also, further urbanisation, which will benefit property developers and the cement industry.
Aberdeen Standard SICAV I- Asia Pacific Equity Fund vs benchmark and sector average