Mainland China remains a preferred market despite the recent regulatory crackdown

Chief Investment Office 1 Oct 2021

Asia ex-Japan equities have underperformed on regulatory concerns in China and the resurgence of the delta variant which has resulted in the lowering of economic growth forecasts. Amid the market volatility, opportunities lie in select sectors which will benefit from the secular trends in Technology, Health Care, and Energy. Mainland China and Singapore are our preferred markets as we look through the chasm.

Besides being long-term constructive on Asia’s powerful semiconductor supply chain, we stay invested in China’s leading e-Commerce players and large cap technology stocks as they have shown their ability to adapt to regulatory changes. After share price correction and downward revision of earnings forecasts in the region of 10-20%, these sectors are currently trading at attractive growth-at-reasonableprice (GARP) levels. We continue to favour China A-shares, comprising sectors and companies that benefit from domestic consumption growth.

We reaffirm our positive stance on China banks and insurance sectors, as well as Singapore REITs. China’s insurance sector will continue to benefit from low penetration rate and increasing acceptance by the country’s growing middle income population. China large banks and Singapore REITs offer investors stable dividend yield in the range of 4-6% that is compelling in the low rate world.