Where to find value in Asian equities
Charles Bond, a fund manager on the Invesco Asian equity team, talks to us about the outlook...
Hold on tight! There are increasing fears that a UK recession could be on the horizon, as we continue wrestling with high inflation and low consumer confidence.
The economy contracted by a larger-than-expected 0.3% during April, according to figures published by the Office for National Statistics (ONS)*.
Production was one of the biggest fallers, tumbling 0.6% as firms continued to report the impact of price increases and supply chain shortages on their businesses*.
The release of the ONS data has resulted in business leaders becoming less optimistic about the UK’s prospects for the foreseeable future.
The Confederation of British Industry (CBI) fears economic growth will soften as household spending turns downwards over the coming months.
In fact, the organisation’s GDP growth outlook has now been downgraded from 5.1% to 3.7% in 2002 – and from 3% down to 1% for 2023**.
High inflation is the main source of weaker growth. CPI inflation reached a 40-year-high in April, due to issues such as supply chain pressures and rising commodity prices.
Tony Danker, the CBI’s director general, expects the economy to be “pretty much stagnant”, but warned it wouldn’t take much to tip it into recession.
“Times are tough for businesses dealing with rising costs, and for people on lower incomes concerned about paying bills and putting food on the table,” he said.
So, where should investors consider if they are anxious about having too much exposure to either the London markets or companies that are overly reliant on the UK consumer?
The good news is there’s no shortage of investment funds that can give them access to a wide variety of stocks, sectors, and markets.
Here we look at three options – in different parts of the globe – and why we think they may be worth considering.
This fund’s managers – Simon Clements, Peter Michaelis and Chris Foster – use a thematic approach to identify key structural growth trends that will shape the global economy. They will then choose well-run companies whose products and operations can capitalise on the changes they are predicting.
According to the fund’s first quarter 2022 review, the managers have remained “resolutely focused” on the long-term prospects of high-quality companies that can grow profitably. “Our experience is that the long-term success of our investments will be determined by the compounding of growth, not the discount rate shifting up a few per cent,” it stated.
The United States accounts for 65% of assets under management, with 8.1% in the UK, 6.8% to Germany, and 5.2% in the Netherlands***. Denmark and Sweden are among other country positions***.
It also has a diversified sector exposure, with information technology having the highest percentage of assets with 34.7%, followed by the 15.9% in health care and the 14.1% in financials***.
This interesting new fund was launched in February 2020. The manager looks to buy and hold high quality companies experiencing secular growth for the long term. The focus is on company fundamentals and macro-economic factors are largely ignored.
According to the most recent fact sheet, the largest country exposure is currently to Switzerland at 21.2%^. Next is Italy with 17.5% of assets, France with 13% and Germany with 12.6%^. Sweden, Denmark, Belgium, Spain, and Netherlands are among others on the list, as well as a small holding in the UK (3.7%)^.
On the sector front, industrials has the lion’s share of assets under management with 34.2%, followed by the 18.1% in information technology and financials’ 14.7% share^.
This fund invests at least 80% of its assets in stocks based in – or focused on – Asia and Australasia, excluding Japan. Companies whose share prices are substantially below Invesco’s estimate of fair value are favoured, with this search for undervaluation taking the fund into unloved areas of the market.
The fund’s manager, William Lam, also has a clear preference for cash-generative companies with strong balance sheets, as this suggests sustainable business models and conservative management.
In his most recent quarterly update, the manager acknowledged markets were right to be concerned about inflation, the war in Ukraine, and the resurgence of Covid-19 in China.
However, he pointed out that we were already two years into the coronavirus restrictions and gave a cautiously upbeat assessment of future prospects. “Inflationary pressures are less of a concern in Asia than in the US, suggesting greater policy flexibility, which should be supportive for markets,” he stated^^.
*Source: Office for National Statistics, GDP monthly estimate, UK: April 2022, 13 July 2022
**Source: CBI, 13 June 2022
***Source: Liontrust, Q1 2022 fund review
^Source: fund factsheet, 30 April 2022
^^Source: Invesco, Q1 2022 Fund Update