Bright spots in Asian stocks can be found amid trade war gloom

Tai Hui says the fundamentals apply, particularly at a time of trade frictions and market turbulence: investors should stick to a diversified portfolio and seek out good companies and growing industries. Sound investment opportunities can still be found

3-MIN READ3-MIN

A woman gets a parcel at the EF Locker online shopping pickup point inside a shopping mall in Hong Kong on June 7. Photo: Reuters

Tai Hui

Tai Hui is chief market strategist for the Asia-Pacific at JP Morgan Asset Management.

Published: 11:15am, 6 Jul 2018Updated: 10:29pm, 6 Jul 2018

Unsettled Asian markets are leaving investors in a fragile mood. Stocks in some Asian markets were hovering around nine-month lows earlier this week and currencies were similarly worrying. After falling to its weakest level in nearly a year, the Chinese renminbi reversed course following vows from the nation’s central bank to keep the currency stable and not to deploy it as a weapon in its trade conflict with the US.

Investors who feel like they are on a roller coaster could be forgiven for freezing in place, but trade worries don’t completely overshadow what is still a broad basket of interesting investment opportunities across Asia equities.

Indeed, most of the sharp corrections of the past few weeks and months are largely attributable to external influences – rising US interest rates, a stronger US dollar and protectionism threatening trade growth – while domestic fundamentals remain strong and have demonstrated more resilience than during the 2013 “taper tantrum”.

For example, despite the heavy correction in the Chinese equity index in the past three months, China’s health care and consumer sectors have outperformed the benchmark. This reflects the growing middle class in China wanting better medical coverage and a higher standard of living.

The latest market angst notwithstanding, interesting and potentially overlooked long-term investment themes in China equities also include software, China’s younger generation, and changes in consumption patterns.

For the long-term investor, there are some interesting and potentially overlooked themes. The rise of China’s Generation Z, the generation born in the 1990s and early 2000s, is one such investment theme with staying power. Photo: AFP

China’s software spending is growing faster than its gross domestic product, on the private and public side. This has been driven by the macro environment as well as the impact of cloud software lowering capital expenditure significantly.