01 Feb 2024
Author: Dave Perrett - Co-Head of Asia Pacific Equities
The views expressed in this document should not be taken as a recommendation, advice or forecast. The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide for future performance.
2023 was tough for Asian equities. Investor sentiment was kept in check by the Fed’s ongoing interest rate rises and the strength of the US dollar. As the region’s largest economy, worries about weak economic growth in China and the problems in its giant property sector arguably dented confidence as well.
While there are risks associated with China, in particular, we believe that volatile markets driven by macroeconomic concerns can create interesting opportunities for disciplined, bottom-up stock pickers.
In times of uncertainty and negative sentiment, stocks often get sold indiscriminately across the board, which can create a fertile environment for selective investors to identify undervalued companies. At present, we believe that pessimism about China’s fortunes and the wider economic outlook is presenting opportunities for active investors to find great companies, both in China and across the region, at very attractive valuations.
By focusing on near-term uncertainties and recessionary fears of weaker profits, we believe many investors are overlooking the longer-term prospects for companies that have powerful structural tailwinds behind them and an improving approach to delivering returns to shareholders. In China, for example, we are seeing the pace of share buybacks increase rapidly and dividend yields hit multi-year highs.
Across the region, we see opportunities ranging from shipbuilders, who could benefit from the replacement of the existing global shipping fleet to meet tighter environmental standards, to innovative businesses involved in environmentally friendly technologies such as renewable energy and electric vehicles that could be winners as Asian economies shift towards clean energy sources.
Moreover, active investors like M&G who engage respectfully with companies – through what we call “value-added shareholdership” – can potentially add greater value to the companies they invest in, whether it be through better corporate governance, shareholder returns and improved sustainability actions.
“Value-added shareholdership” is an additional and important way in which M&G can seek to add value for its clients in Asia. In summary, amid all the present uncertainty, we feel that Asia today offers a wide spectrum of exciting long-term opportunities for engaged bottom-up stockpickers like M&G.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.
A Flourish chart