Quality Growth Boutique

2Q 2021 Asia Pacific Equity Outlook: Finding Reasonably Valued Opportunities Across the Region

Outlook

Finding Reasonably Valued Opportunities Across the Region

Portfolio Manager Brian Bandsma discusses semiconductors, regulation of tech companies in China, and India’s road to recovery.

 

  • Investors are starting to see a reversal of the late 2020 trend where performance was concentrated in a few tech and high growth names. A healthy recovery in value stocks is underway, and pricing should come back in line with a more realistic outlook going forward.
  • New and evolving technologies need to invest heavily in logic chips, which has underscored how critical Taiwan and Taiwan Semiconductor Manufacturing Company have become to global supply. The risk of one country or one company being so central to leading-edge technology is also increasingly visible to governments.
  • The pandemic curtailed auto manufacturing and sales. Consequently, chipmakers reallocated their production to other areas of demand. As car purchases come back strongly, it will take time for chipmakers to reallocate supply back to autos.
  • Regulators in China are wrestling with the same challenges as authorities elsewhere in the world regarding regulating large tech companies. Steps taken at Alibaba’s Ant Financial require the company to be more financially prudent. And while there are concerns about merchant exclusivity agreements at retail platforms, such as Alibaba, such issues are less of a concern for Tencent, which is more focused on the communications sector.
  • Fiscal and monetary policy responses to the pandemic in India and other countries across the region – as well as globally – have raised the prospect of overstimulating economies and creating inflation. We are watching for signals of economies becoming overheated.
  • We are monitoring the impact of commodity prices in India, which is a major importer of both gold and oil. While oil prices, in particular, are a headwind, they are not unmanageable as India has weathered much higher prices in the past.
  • COVID-19 has created intense challenges across the Asia-Pacific. However, countries such as Indonesia still have the ability to make basic investments that can improve economic efficiencies. As a result, its economy is in a relatively strong position.
  • Across the Asia-Pacific region, there are very good companies with good growth prospects, selling at very reasonable valuations. Investors that manage a concentrated portfolio have scope to sift through the universe to find good long-term growth opportunities.

 

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