On 14 September, GAM Investments hosted the first of our GAM Active Equity Series events titled ‘Innovative Alpha Generation’. Three of our investment experts, Jian Shi Cortesi, Mark Hawtin and Niall Gallagher, discussed the impact of Chinese / Asian consumer growth on equity markets and also the ever-more pressing agenda for global decarbonisation.
Jian Shi Cortesi – China and Asia Equities
Innovation and consumer sectors in Asia are a great point of interest at the moment and the recent correction in China could present some attractive investment opportunities, in our view. The government policies are shifting towards ‘common prosperity’ to help ensure equal access of opportunities and resources across the country; the recent regulatory changes are being put in place to help achieve this goal. As such, while we see valuation support for large-cap names such as Tencent and Alibaba, we also have a positive outlook on rising-star companies who should be able to compete on a more level playing field.
Interestingly, while China is one of the largest carbon emitters, representing 30% of global emissions and 50% of the world’s coal consumption, it is also the leading manufacturer of clean energy solutions. China controls 70% of global solar module production, manufactures 45% of global wind turbines and accounts for 40% of electric vehicle (EV) sales. In the Five-Year Plan there is a large emphasis on sustainable development, fitting into the longer-term goal of achieving carbon neutrality by 2060. What this implies is that clean energy must go from a peripheral source of energy to the predominant source of energy for the country over the coming decades. It is here that we focus our attention, finding the leaders to invest in the future of clean energy.
Moving forward from here, we will continue to focus on megatrends such as rapidly developing technologies and emerging demographic trends. In Asia, Gen Z and millennials are driving consumption, with their tastes being very different to their parents, and we hope to capitalise on companies tailoring services towards this demographic. On the other hand, there is an ageing population in China, so automation will be key in compensating for the declining birth rate. In our view, this will drive the demand for services such as wealth management and healthcare.
Mark Hawtin – Global Equities
The intersection between the Asian consumer and disruptive technology, such as AI and big data, is a key investment theme in the global equities sphere. Following the regulatory change in China and the impact it has had on business-to-consumer stocks it is our view that a focus on business-to-business names could prove more valuable for investors. Companies such as Full Truck Alliance, which operates a digital freight and logistics platform, is a good example of this theme capitalising on the increased supply chain logistical needs of the consumer-led demand growth.
While decarbonisation is not a key theme within the disruptive universe, as a whole, the portfolio has a low carbon footprint given the lack of exposure to sectors such as materials and heavy industrials. Our ability to focus on new sources of energy through EV companies is interesting. There is a great amount of money being invested into the EV market globally, and a huge part of that is battery technology. This investment in battery technology can then be translated into the energy industry more broadly and therefore improve provisions of alternative sources of energy. The way in which one sector can impact another is often missed in terms of investors’ perception, but in our view is extremely interesting.
Our outlook going forward is to focus on the biggest, most disruptive themes. We believe this is going to be centred around the fourth digital wave; how big data and AI, in particular, are becoming so much more advanced is allowing a sort of hyper-automation, in which both human and mechanical labour can become automated in a way they never have before.
Niall Gallagher – European Equities
To contextualise, more than a billion middle-class individuals will originate from China, India and other parts of emerging Asia global middle-class consumption over the next decade. This structural trend in Asia, particularly China and India, is one which European companies have increasingly grown exposure to over the past three decades (seen in Chart 1) and we continue to see this exposure offering significant growth opportunities. Importantly, this growth comes from the middle-class consumer, not the uber-wealthy, therefore China’s objective to distribute wealth more equally will only assist in driving this growth. Key names that have been capitalising on this trend include LVMH, Moncler, Diageo Pernod Ricard and L’Oreal in the consumer / luxury space. The gap between the winners and the losers in these sectors is the wide and we believe bottom-up stock selection and active management is key to exploiting the investment theme.
Chart 1: Exposure of European company revenues:
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.