At GAM Investments’ Weekly Equities Meeting held on 11 May, Rob Mumford and Jian Shi Cortesi provided an update on Asian equities and China’s move to recovery.
Rob Mumford – China Equities
China has seen infection rates remain low and economic activity is returning to normal, but the recovery remains uneven with the supply side recovering much faster than the demand / export side. From an investment standpoint, policy decisions going forward will be key. China policymakers indicated on 17 April that they stand ready to provide stimulus with more detail likely to come during delayed legislative assemblies which are due to start on 22 May.
The China equity index (MSCI China) gained during April and is one of the better performing indices globally, supported by an early emergence from the outbreak and strong domestic policy support. In this environment, we believe there are opportunities between beneficiaries of the coronavirus (consumer internet, technology, healthcare) and recovering segments of the economy (property, automobile manufacturers, casinos).
Jian Shi Cortesi – Asian and Chinese Equities
The markets remain characterised by uncertainty. We cannot be sure if we have already seen the worst effects of Covid-19, or if downside risk remains a possibility in the short term. The most likely outcome of the pandemic is a permanent change in people’s behaviour. In 2003, SARS was a catalyst for the adoption of online shopping, particularly in China. During the coronavirus period, we are seeing similar moves in favour of online shopping, online education and working from home. We believe elements of this demand shift will remain even after the pandemic passes.
We believe the long-term bear market in commodities that started in around 2010 is not over, as it would likely require a few more years for the high cost producers to exit the market. Therefore, we anticipate investors may be wise to continue to avoid energy and commodities, and instead focus on consumer and technology. Once the virus passes, it is our opinion that a full-blown tech bubble might develop. Companies that can generate attractive growth, such as those in consumer and technology, could flourish, as they did in the recent low yield, low growth environment. In consumer and technology, we would avoid the “hypes” and focus on selecting companies with attractive valuations relative to their growth potentials.
Source: GAM unless otherwise stated. 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 no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. May 2020.