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3 strong arguments for investing in Asian equities
Asian equity markets have recently been in the spotlight following sharp fluctuations in the prices of Chinese technology stocks and uncertainty about US measures aimed at curbing China's export growth.
Written by
Kiran Nandra
Head of Emerging Market Equities Management
For investors who like to look beyond the latest investment fads, Kiran Nandra – Emerging Equities senior product specialist at Pictet AM – presents three strong arguments in favour of investing in the Asia region, excluding Japan.
Underlying growth
Favourable demographics are creating a tailwind for Asian industry. The population is growing relatively quickly, and it will be a few years before the ageing that currently characterizes many Western countries becomes a significant factor in Asia. Another tailwind is being generated by increasing prosperity. By 2030 it is estimated that 2.5 billion Asians will join the middle class.1 As domestic consumption takes the place of the export industry as the key driver of Asian economies, greater opportunities will present themselves for local businesses.
Diversification
Asian equity markets occupy a unique position within the emerging markets segment. The region is much less reliant on commodity firms and other sectors that are characteristic of such countries. Asia is instead characterized by a relatively large number of companies in sectors that are benefiting from rising consumption, such as technology firms. Price movements and earnings performance are being driven by completely different factors compared with companies in the developed world.
Valuation
In spite of the good prospects, Asian equities are attractively valued. Over the past five years this investment category has returned around 30%. That is just half of the return of around 60% that an investment in developed market equities would have generated over this period. In spite of the better growth prospects, Asian equities are valued 25% below the level of the stock markets in the developed world.
Correction of undervaluation
Rising profit expectations and positive cash flow developments could lead to a correction of this undervaluation. Moreover, institutional investors are underweight within this region, which means the segment is not particularly vulnerable to profit-taking. Pictet AM’s estimates suggest that the expected return on Asian equities over the next five years could exceed 10%.
Important legal information
The Pre-Contractual Templates (PCT) when applicable, the Key Information Document (KID), as well as the Prospectus must be read before any decision to invest. The Prospectus (in English and in French), the PCT when applicable, the KID (in French and in Dutch), as well as the latest annual and semi-annual reports (in English and French) are available free of charge at our financial Belgian agent CACEIS Belgium S.A., 86C /b320, Avenue du Port, 1000 Bruxelles or at the management company, Pictet Asset Management (Europe) SA, 6B, rue du Fort Niedergruenewald, L-2226 Luxembourg, as well as in digital format at www.assetmanagement.pictet.
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