Appetite for Asia seen growing, says Mirae specialist
Growing European investor demand for South and Far East Asian investment is feeding into growth at Mirae Asset Global Investments, according to client portfolio manager Chris Chen.
Hong Kong based Chen recently visited Europe to meet investors, a visit he said was spurred by demand seen for Mirae’s products, such as its Asia Sector Leader Equity fund, and its Great Consumer fund
The manager is also seeing European investor interest in India, Chen says. Some of this interest is specific, such as European high net worth individuals looking to the Asia consumer story, but for others it is raised as a liquidity play amid concerns that liquidity changes in Europe can have an impact in Asia.
A key driver of changing attitudes is of course China.
Asked about the potential impact off the MSCI admitting Chinese A shares to its ubiquitous emerging markets index, Chen said that Mirae’s benchmark-agnostic approach to investing suggests the inclusion of China will not have a direct impact.
For example, Samsung, at the time of the comments, was not owned despite its benchmark presence (this was even before the Korean company’s problems with its latest smartphone devices catching fire had developed into the problem that it has become).
Additionally, the Stock Connect has meant that Mirae can already invest in China, but it has chosen to adopt a low A shares exposure.
“It’s a very different market,” Chen stresses
“In China, flows are driven primarily by retail money.”
This facet alone of the local stock market means that Mirae is not investing in China heavily through its regional funds. That said, there are opportunities, but they will be very stock specific. Prices generally on the local market are not at levels that international investors may feel comfortable with; Chen cites high p/e multiples, which may trend down as MSCI inclusion leads prices to be set more as they would in the West, predominantly off the weight of institutional buyers and sellers interacting in the market.
“We would never own something because of expectations off MSCI inclusion,” Chen adds.
On a broader note, Chen outlines the concerns that Mirae has on valuations given ongoing slow global economic growth. In that context investors need to think about what types of businesses to own
Asia stands out because a lot of economies are domestically focused, Chen says, noting that in the debate between developed versus emerging market economies, Mirae wants to be able to see the structural stories, as occurring in India, the Philippines and Indonesia.
These are three of the youngest countries in terms of demographics, with low debt/GDP ratios, but which are large enough and young enough markets to offer good growth prospects.
Leaders in these three countries seem to be focused on business opportunities, and removing economic inefficiencies, Chen says, noting that this currently stands in stark contrast to, for example, Brexit uncertainties which are leading business investment to be postponed.
This is all by way of explaining why Mirae’s funds end up with exposures higher than benchmarks to these three markets, and then with a focus on consumer sectors, banks, transportation – the shift from motorcycles to cars in India is described as “exciting” – as well as cyclical sectors such as cement – cement cannot be exported globally in the way that, say, steel can.
Singapore, Taiwan, Korea are markets that are more globally exposed, and given less certainty around global cyclicals, means exposure to these is lower than the benchmark – although there may be certain examples of areas that are still doing well, such as Korean cosmetics being bought by Chinese consumers.
Notwithstanding the views on the MSCI emerging markets index and its moves to include China in the benchmark, Chen notes that China is simply too important to ignore or brush aside
In macro terms, Mirae does not see a hard landing occurring; the country has large FX reserves, and its capital market is relatively closed with debt owned by locals – limiting direct influence of any problems stalking international capital markets elsewhere.
There are structural issues, such as high corporate debt and inefficiencies in capital allocation, and the demographics are not great But there are opportunities at the micro level.
Mirae wants to stay away from the cyclicals, such as bank because of the non performing loans issue. And even in consumer sectors there is evidence of hurt being felt by consumers because of the influence of macro factors – consumer staples in the last results season indicated some evidence of this. Again, Chen stresses the need to pick out individual companies.
“The internet and ecommerce are seen as an area of opportunity. Express parcel deliveries are growing at 50% annually,” he says.
This type of development gives rise to examples of a locally competitive edge. A known example is WeChat and the so-called ‘network effect’ – the more users of a network the greater its ability to see off competitors.
Consolidation in sectors such as tourism is also creating strong domestic companies, including in the area of online travel booking.
Another trend affecting China is described as ‘wallet shifting’: consumers are finding pure luxury less appealing than 5-10 years ago. Then, it was the nouveau riche who were spending, but now a burgeoning middle class is less looking for a name brand as such, but is becoming more sophisticated and searching for brands that show ‘individualism’.
“You see people spending more on the experience rather than buying a ‘thing’,” Chen says.
As part of this shift there is also growing awareness of the impact of consumer decisions in regards to SRI/ESG. However, the awareness levels are as yet nowhere near those found in, say, Europe or the US.