Six experts highlight opportunities in the region for investors.
By Suzanne Woolley
September 26, 2021
Investing in Asian markets has always been tricky, and you might think that’s the case now more than ever.
China’s stock market has been particularly volatile. The nation’s ties to Russia, continuing regulatory crackdowns on some of its leading companies, a deep crisis in the property market, and a series of Covid shutdowns are just a few of the crosscurrents buffeting markets.
In more positive signs, the Chinese government said it would increase its policy support for the country’s economic and capital markets. And while rising inflation is an issue in India, the country’s central bank has said that it will stay supportive of economic growth and is in no rush to raise borrowing rates to counter the increase in living costs.
To find out where a profitable spot for $100,000 might be in Asia, we asked six investment experts for their advice. Ideas that the experts share stretch from the highly volatile Chinese internet sector over to the renewable energy sector and into the sovereign bonds of China as a haven asset.
We also asked the experts where they would deploy $100,000 on an investment that’s more of a personal passion. The choices ranged from luxury handbags rising in price due to Covid-induced scarcity, to real estate that could be “the next Vail or Aspen of China,” to NFTs.
To find ways to play the themes laid out below using exchange-traded funds, Hong Kong-based Bloomberg Intelligence ETF analyst Rebecca Sin weighs in.
Anyone investing in the financial markets would do well to make sure they’ve covered all the basics of smart financial planning, such as being well-diversified across asset classes, investment styles and geographies, and having a sufficient cash cushion so that needing to sell into a down market won’t be an issue. To see if your planning ticks off all of those boxes, read “The Seven Habits of Highly Effective Investors.”
Melody He, deputy chief executive officer, CSOP Asset Management
There is a lot of uncertainty in the markets given a combination of geopolitical risks, inflation and Federal Reserve rate policies, as well as persisting pandemics. A segment that is quite uncorrelated with all of this is Chinese government bonds.
China has set an ambitious economic growth target of 5.5% for the year, putting the spotlight back on fiscal stimulus to counter the risks of an ongoing property market slump and rising geopolitical tensions. Economists have said the target implies that China will increase infrastructure spending, cut interest rates further and do more to stabilize housing. These support the price of the government bonds, known as CGBs. Premier Li also reiterated a commitment to controlling overall debt levels and said the number of bonds available for local governments to fund specific projects would be the same as last year. This limits bond supply pressure a bit.
The 10-year CGBs still have a decent yield of about 2.8%. In terms of the renminbi outlook, the Russian-Ukraine conflicts are likely to boost the renminbi’s internationalization and lead to a greater desire for countries to diversify both their reserves investments and trade settlement currencies into renminbi. The Chinese renminbi spot price is expected to stay resilient in the foreseeable future, a range of 6.3 to 6.4 to the dollar in the first half of 2022, according to broker estimates. Chinese government bonds can be the new safe haven.
How to play it with ETFs: Two ETFs that offer exposure to Chinese government bonds are the ICBC CSOP FTSE Chinese Government Bond (CYB SP)
Another way to play from He: Gems are easy to carry and store. I love to visit wholesale jewelry fairs and am fascinated especially by colored stones. Diamonds, emeralds, rubies and sapphires have had great runs in the past few years and are expensive for an ordinary collector. New entrants such as tourmaline, tanzanite, spinels, etc., have become popular. My personal favorites are aquamarine spinels. Try to get gems at wholesale prices, not necessarily when they’ve already been put into a setting or been branded.
Laura Lui, partner and co-chief investment officer, Premia Partners
We’re positive on Chinese equities given the decisive shift of the People’s Bank of China monetary policy stance to easing, and because last year’s regulatory clampdown appears to have paused. Looking ahead, the leaders in policy-support sectors with consistent earnings growth — such as semiconductors, new materials, green economy and biotech — would be beneficiaries of policy tailwinds and are good diversifiers for investors with concentrated exposure to Asia’s tech sector. A lot of investors currently maintaining an underweight or with a zero weight to China/Asia are closely monitoring the markets to find the appropriate window to get back in.
But even sectors that previously had light-touch regulation, such as innovative technology-enabled leaders, and that now face valuation updates and massive overhauls of business models, look more attractive. Examples include Sungrow Power Supply, Longi Green Energy Technology and Contemporary Amperex Technology, where a lot of the corrections have happened and they maintain high earnings growth and attractive price earnings-to-growth ratios.
We also think prospects for many emerging markets are promising. The Asean market, especially Vietnam, is one where the long-term industrialization and urbanization growth story remains intact. We’re bullish because of its favorable macro environment, solid earnings growth outlook and reasonable valuations. Major Asean and Vietnam indexes have less exposure to growth sectors such as information technology and healthcare, and more of a tilt toward value and domestic-related sectors such as financials, consumer staples and real estate. Any big dips are a good entry point to ramp up positions for mid- to long-term investors.
How to play it with ETFs: The $46 million Premia Dow Jones Emerging Asean Titans 100 (9810 HK)
Another way to play from Lui: I’m pleasantly surprised by the liquidity of retail luxury goods in Asia, especially handbags and watches, given the limited production amid Covid. You’ve seen strong sales at auction houses, and at secondhand shops around Hong Kong. It’s amazing how you can enjoy wearing such design pieces while preserving value. I recently sold a secondhand basic Chanel flap bag with chain at three times the purchase price from 10 years ago, since it’s impossible to buy from the shop nowadays. I’m also learning about NFTs. I focus more on Web 3.0 NFTs that could provide unique membership or impact instead of a profile picture. Projects I like include CyberKongz, where they will provide unique minting access to their projects, and the Remarkable Women NFT collection by House of First, which has art, culture and impact elements.
Xiaolin Chen, head of international, KraneShares
Widespread fears about geopolitical risk have led a global equity market selloff. Investors are staying cautious, but we believe the downside surprise from current levels is limited given the pullback. We see industries with high domestic-business exposure performing more defensively, and a sector that is trading at attractive valuations could offer a better rebound — China’s onshore equity and internet sector.
Looking back over the past 30 years, China’s equities — and particularly China A-Share equities — have tended to be more defensive when global geopolitical risk is heightened. That’s because, first, China has an idiosyncratic nature in policymaking, and policymakers have not fully utilized available tools to support the economy, which is the opposite of what we’ve seen with the majority of developed markets. Second, Chinese companies often make most of their money domestically, with overseas revenue exposure in single digits. Third, the “risk-off” appetite is unlikely to result in a large selloff of Chinese shares, as foreign ownership is only around 4.5%. The asset class is broadly underweighted in global portfolios by approximately 450 basis points versus the benchmark, according to data provider EPFR.
Over the past year or so, China’s internet companies aggressively revised earnings, leading to repriced valuations. On average, they are currently trading at 17.8 times earnings, compared with 34.3 times for their U.S. counterparts. The correction has created an attractive entry point for long-term investors from a fundamental perspective. Historical studies show that China’s internet sector outperformed the Nasdaq, S&P 500 and the U.S. Growth Index for seven of the last nine Federal Reserve rate-hike cycles since 2008. Even if China’s GDP is normalized in a relatively lower (around 5%) but stabilized range, the growth style tends to outperform value.
How to play it with ETFs: With more than 50 China tech ETFs, KraneShares CSI China Internet (KWEB US)
Another way to play from Chen: My idea comes from watching my three-year-old son Austyn navigating his iPad to open YouTube and browsing through all the different channels to find his favorite YouTuber and enjoy his allowed five minutes of iPad time. We watch his favorite program together, which is simply a self-written song to teach toddlers about shapes, colors, numbers and wild animals. That’s where Austyn learned how to say “mosquito.” I literally sing along with the YouTuber and the three-minute video had more than 2.1 million views! I would invest my $100,000 on an earlier education and learning YouTuber. That could be a fun project to be involved in, and I could potentially get some oversight on what Austyn is watching — to the extent I can!
Linda Zhang, founder and CEO, Purview Investments
My investment strategies are often guided by two things: opportunities due to major changes in macro conditions and policies, and the need to hedge against alarming risks.
The first mega-trend is the global transition to a net-zero economy. This leads to fundamental changes and technology breakthroughs across industries. The energy transition to renewables, and transportation from combustion to electric, is leading to investment opportunities in renewable energy, electric vehicles and batteries. Chinese firms are leading in these areas, thanks to policy commitments and economies of scale. Agriculture is the biggest greenhouse gas-emitter globally, so water and space-efficient farming, and the meat to plant-based food transition, are good spots to look for opportunity.
My next idea is a hedge against bumps in the net-carbon transition, i.e. carbon credits, requiring polluters to pay to do so. The price rises as regulators tighten and company’s demand rises. Europe is leading in the carbon credit market. Shanghai opened China’s huge carbon exchange in 2021.
How to play it with ETFs: Chinese electric-vehicle ETFs returned more than 30% in 2021 due to favorable government policies, Sin said. Whether it’s China or global exposure, Global X offers access to both at a fee of 0.68% in the Global X China EV (9845 HK)
To hedge against inflation, gold has often been a popular choice as it’s physical, holds its value and is often viewed as a safe haven asset, said Sin. For an ETF tracking gold, SPDR Gold MiniShares Trust (GLDM US)
Another way to play from Zhang: I would buy women artists’ work from anywhere. They tend to be profound yet are almost always undervalued. I bet one can find Hilma af Klint and Georgia O’Keeffe. Another fantasy stems from the winter sports fever in China post-Olympics. I would also buy a ski condo, shack or whatever is on the market now, preferably in Changbaishan, or Yaboli in the Northeast China for the natural beauty and bountiful snow. Who knows — one of these resorts could be China’s Aspen or Vail one day.
Cherry Miyake, founder and chief executive officer of CeRise, Inc., and Tiger 21 member
Covid has taken up lots of attention from the Chinese government. Now more than ever is a great time to look at the generative water system in China, as health and virus control is a top priority. The Chinese government is determined to improve the environment, especially natural resources like rivers and lakes, and is constantly issuing new policies, even more so now after the pandemic.
There is great demand to clean up the effects of industrial pollution and do algae cleanup in lakes and rivers. As the quality of life improves in China, people are more conscious about the source of their water, the seafood supply chain, and the importance of a good environment in which to live and play. All these environmental factors will lead more companies in this sector to grow and provide better solutions. These companies are mostly small- to mid-size, and many are publicly traded.
Governmental initiatives will be the key for growth since the rivers and lakes are owned by the government. But China is open to sourcing technology from around the world so that they can develop their best innovations. One example of a company that has been doing that is Suez Environment, a French company that is deploying its technology in more than 30 cities in Asia, and which was recently acquired by Veolia Environnement (VIE FP). Veolia optimizes resource management services and designs and provides water, waste and energy management solutions. The biggest risk investors face with these companies is cash flow. This is a long-term play, requiring a lot of innovation and deployment, but the potential is huge.
How to play it with ETFs: Lyxor MSCI Water ESG UCIT (WAT FP)
Another way to play from Miyake: Online gaming has grown widely among adults but traditional games like chess still have their own charm for many reasons, such as bringing family and friends together to have fun over high-intelligence game-playing. I’ve invested in Play Magnus Group, a company based in Norway that delivers an innovative online platform for playing, learning, and watching chess.
Virginie Maisonneuve, global CIO equity, Allianz Global Investors
Innovation remains a theme we favor globally and is very much in evidence in Asia. Given the current geopolitical environment and the critical need to shift to lower-carbon energy, renewable energy innovation will accelerate and get government support around the world.
Artificial intelligence will accelerate renewable energy adoption by anticipating better energy demand, better forecasting of weather conditions, better grid management or better prediction of infrastructure maintenance needs. AI is key to making sure decentralized energy sources send excess electricity to the grid while utilities direct power to where it’s needed. The same dynamic holds for energy storage with industrial facilities or office buildings.
With solar costs declining over 85% during the past decade, price competitiveness is a key factor. The geopolitical consequences of the Ukraine invasion will accelerate permit allocation to increase efficiency, and the European Union has a plan called REPowerEU, which targets independence from Russian fossil fuel before 2030. Solar capacity should more than triple to 200 gigawatts by 2030 and onshore wind capacity should double by 110 gigawatts; offshore wind is expected to triple to 30 gigawatts.
There will be strong demand for Chinese solar and wind manufacturers. Innovation in battery storage and cable technologies will remain critical, especially given increased costs in some materials needed to manufacture them. There are incredible investment opportunities along the supply chain, in producers and service companies.
How to play it with ETFs: Among the more than 50 artificial intelligence ETFs, Global X China Robotics & AI (9807 HK)
Another way to play from Maisonneuve: Having lived in Asia for many years, I experienced both densely populated modern megacities like Singapore and Hong Kong, and other overpopulated hot spots where food security and water quality is a permanent issue. Given the added challenge of global carbon reduction, I got interested in vertical farming, which combines technology, artificial intelligence and farming in cities. Through lower transportation costs and careful energy and water management, vertical farms promote more-sustainable urban living and fresher food. It appeals to me as an investor and global citizen. The best way to participate is through startups, venture capital, or through a few listed companies in the sector. An alternative is to look at stocks related to vertical farming such as equipment suppliers, water management and purification systems, or the lights used to support crop growth.
Marko Papic, Partner and Chief Strategist, Clocktower Group
We start with a macro thematic approach to investing, blending geopolitical analysis, macroeconomic trends and policy insights from the ground to nail down our views. There are three trends that excite us today in Asia. First, we think that foreign investors are souring on China at precisely the moment when investing in the country may be becoming easy. The Chinese Communist Party is offering you a sectoral asset allocation for free: long “hard tech” and short “soft tech.” Think of the “Xi put” as this decade’s “Greenspan put.”
Second, by hard tech, China means semiconductors, 5G, green or sustainable tech, industrials, materials and energy. The shift is not exclusive to China, either. In Japan, we are particularly interested in all things related to sustainability and green tech. Japan stands to profit from the global Race to Zero — the United Nations-backed push for countries to achieve net-zero carbon emissions as soon as possible — due to its lead in semiconductors, advanced materials and tech hardware.
Third, sentiment in China is particularly focused on the race to build the metaverse. While in the West, uttering “the metaverse” is likely to get you laughed out of the boardroom, in China it is seen as the next technological frontier. The way to invest on this theme is to buy advanced semiconductor companies — especially those doing a lot of capital expenditure — VR or AR manufacturers and global gaming companies.
To profit from Beijing’s turn to “hard tech,” investors could buy the KraneShares SSE STAR Market 50 Index ETF (KSTR US) or the KraneShares CICC China 5G and Semiconductor Index ETF (KFVG US). To play “Green China, Inc.” there’s the KraneShares MSCI China Clean Technology Index ETF (KGRN US) or the VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT US). We recommend a custom basket of companies for the “Japanese Race to Zero” thesis. The only ETF playing the theme is the Global X CleanTech ESG Japan ETF (2637 JP), but it’s only available on the Tokyo Stock Exchange.
How to play it with ETFs: The Global X China Semiconductor ETF (3191 HK)
Another way to play from Papic: I joke with the denizens of our Shanghai office, which is full of smarter and younger people than me, that they will all owe me a “town home on Hainan Island” when I have transferred all my wisdom to them. So if I had a $100,000 serendipitously drop in my lap, I’d just get that townhome myself. Why? First, we believe that geopolitical tensions between the U.S. and China are real and serious, but also constrained by several factors not least of which is global multipolarity — a world where no one or two countries are in charge. Second, China is developing Hainan Island to be the next free trade haven. Third, I like the beach and don’t get enough of it in Santa Monica!
Gregg Fisher, Founder, Quent Capital
Over long periods of time it’s generally a winning strategy to have your portfolio a little more in things that are priced reasonably and a little less in investments that have high prices. Right now, valuations on Asian equities are more reasonable relative to the U.S., with, for example, the price-earnings ratio on the SPDR S&P 500 ETF (SPY) around 29, and the PE on the iShares MSCI China ETF (MCHI) at 14.
I’ve had an interest in smaller company stocks for a long time, probably because I’m an entrepreneur and appreciate all the intangible things a small-business mindset brings to the table. Some of the financial ratios on growth companies that are on the smaller side can look a little absurd, but if you treat things like joint venture partners, customer relationships, the energy of the founder and the team as assets, some of these companies are quite reasonably valued.
One company I like in China is Uxin, which sells used cars. It’s like the Carvana of China. The service is similar to those we’ve seen in the U.S, with more transparency about where the car has been and how it works. Uxin has a great inventory system, the quality of cars has become better, and they’ve taken out some of the financing risk by using third-party financing companies. With this company, you’re getting a little closer to the local economy and used cars is an area that’s very important in China.
In Japan, a company called CrowdWorks has some good demographic tailwinds. It’s an online platform designed to appeal to gig workers, telecommuters and those who work from home, and it has 4.5 million workers in its client base. It has potential when you think about the future of work. There’s room for a bunch of these businesses in Japan, and someone in Japan would be more likely to work with CrowdWorks than with companies like Israel-based Fiverr or U.S.-based Upwork.
How to play it with ETFs: The ARK Next Generation Internet (ARKW US)
Another way to play from Fisher: I’ve been collecting superhero paraphernalia all my life, and in my office I have a Captain America shield, a Spiderman statue and a Batman statue. If someone told me to spend $100,000 on anything, I’d like to buy a whole collection of additional Marvel and DC Comics items. NFTs have caught some interest in that world. Spiderman has a bunch of digital collectibles now, and so do others. I don’t know if it’s tulip bulbs, but I may as well give it a shot. But in general, the potential value of certain limited edition collectibles will grow and hold value as long as the underlying brands continue to create this ecosystem of content and connection. The demand has increased because the content is in multiple mediums.
Eric Manlunas, Tiger 21 member and founder of Wavemaker Group
There are a lot of opportunities in logistics and supply chain companies. I was well aware of the friction points when I was growing up in the Philippines. The Philippines has about 111 million people spread across a huge archipelago of over 7,100 islands. Not every island is occupied, but there are people in some parts of the country that still require a lot of supply and logistics support.
We’ve invested in a company called Growsari, which uses mobile technology to cut costs and save time for small business owners. In the Philippines there’s this phenomenon of sari-sari stores — they’re like a rural version of a 7-Eleven. Before, sari-sari owners had to travel to major urban centers and rely on intermediaries to procure goods. That meant manufacturers and distributors were getting big margins, but sari-sari stores weren’t. Growsari helps such stores digitize their businesses, and procures wholesale inventories, which is great for the stores’ margins. The company has sights to expand beyond the Philippines.
Aquaculture is another compelling investment area. If you overfeed fish they can die, and you’re not optimizing your harvest. In Indonesia, companies are using sensors to detect certain behaviors that fish exhibit when they’re hungry. When the technology senses that behavior, it releases just the right amount of food into the ecosystem. We are looking for these types of emerging-markets solutions where technology can really improve the way agriculture works and can be used to cut costs.
How to play it with ETFs: Premia Dow Jones Emerging ASEAN Titans 100 (2810 HK)
Another way to play from Manlunas: My wife and I put a huge amount of value on experiences over material things. I’ve become a bit of a safari geek. I’ve gone three times, first in 2006 to Botswana, then when the kids were older we took them to Tanzania and then we went to Zimbabwe with four other couples. The reason I love safaris is because there is nothing more peaceful than being in the middle of the African bush, so uninterrupted by technology and the urban hustle and bustle. You have the opportunity to think about nature and reflect on things, personal or professional. We had a trip planned last year to go back to Botswana with friends, but Covid had different plans for us. We are trying to reschedule that for December.
Rahul Chadha, Chief Investment Officer, Mirae Asset Global Investments
When it comes to China’s technology sector, in the last 12 months the market has gone from excessively optimistic to excessively pessimistic. When stocks correct so much, there is a favorable risk-reward calculation as you are getting in at the lower end of five-year average values.
Growth rates are going to slow down as companies like Meituan pay more in terms of social obligations to their drivers, yet those costs can eventually be passed on to the end consumer. It’s a similar story with Alibaba. While we’ve seen e-commerce penetration plateauing, if you believe in the Chinese consumption story the stock is attractive, particularly at a single-digit multiple.
India is also promising. Prime Minister Narendra Modi has improved the climate for investing in the country, with reduced tax rates and production incentives. After Covid dislocations, most companies are now looking at a China-plus one strategy for suppliers as they’ve realized having 60 to 80% of products sourced from China is not something that can happen for the next decade.
Despite the big loss in terms of life that Covid took in India, the economy is rebounding well. We are positioned for a cyclical recovery and own things like banks and industrials. Part of our evergreen exposure is on the consumption theme. Covid has expedited the adoption curve of companies such as Zomato, India’s leading home delivery company. New habits are forming, which is something we as investors often underestimate. Valuations aren’t cheap, but for a certain portion of our portfolio as long as we like the opportunity and the management, we’re prepared to overlook valuations because the stocks will grow into them.
Vietnam is a similar story, but at one-third of the valuation, with long-term structural drivers of growth in urbanization picking up, income growth and great companies. We like Phu Nhuan Jewelry, the country’s leading mass-market jeweler. PNJ is gaining share from independent jewelers, which account for 70 to 80% of the market and also benefits from Vietnamese women starting to prefer diamonds over plain gold jewelry.
How to play it with ETFs: If your focus is Chinese tech platforms, the main players are Tencent and Alibaba, said Bloomberg Intelligence’s Sin. If you’d also like Meituan, it doesn’t get better than Samsung CSI China Dragon Internet (2812 HK)
Another way to play from Chadha: Art is close to my heart, particularly Vietnamese art. I’ve got pictures both in my office and my home. They’ve significantly increased in value since I bought them five or six years back, but when I see the prices of the art elsewhere, I think they are reasonable. One should go to a nice place like Apricot gallery in Ho Chi Minh City, Hanoi — it’s a big gallery with authenticated work. If I bought another painting I’d have money left over to buy a watch of my choice, which could be handed down, and I could still go on a nice holiday.
Jack Nelson, Portfolio Manager, Stewart Investors Sustainable Funds Group
The Asia-Pacific region isn’t going to follow the same development path as today’s rich countries. Our mindset investing in Asia shouldn’t be: “When will Asia catch up with the West on this metric?” It should be: “What will the Asian path be?”
We see the most attractive investment opportunities in companies benefiting from tailwinds in the shift towards more sustainable development.
One example is Vitasoy. It’s based in Hong Kong and derives the vast majority of its sales in China. If you look at the dairy industry globally, greenhouse gas emissions account for more than aviation and shipping combined. The biggest driver of that in the future will be consumption in Asia. Consumption in China is forecast to triple over 30 years. Every liter of plant-based milk or every gram of tofu that Vitasoy sells in China displaces a material volume of emissions. China is not self-sufficient in dairy in part because its traditional dairy regions in inner Mongolia are subject to desertification and water shortages. Milk consumes 20 times as much water, so alternatives like Vitasoy will be better placed in the future.
Usually our portfolios have a much greater exposure to India and a much lower exposure to China. That’s not because of any view on macro-economics or politics, but it’s simply where we can find high-quality private businesses benefiting from sustainability tailwinds. In India getting access to the sort of detailed information on a company we need as bottom-up investors is also easier.
One investment in India is housing finance company Housing Development Finance Corp. Around half of HDFC’s loans are to new homeowners and around a third of its loans are in the affordable loan segments. Across Asia and emerging markets, there are hundreds of millions of people who don’t have adequate housing, and the biggest single reason for that is lack of access to finance. So a company in which the business model is linked to helping plug that gap in a way that is responsible and balances the needs of stakeholders delivers historically fantastic returns.
How to play it with ETFs: There aren’t any ETFs that exactly match this specific ESG theme, but if you believe that freer regions perform better economically, one option could be the Freedom 100 Emerging Markets (FRDM US)
Another way to play from Nelson: I don’t have any interest in watches, art or similar, so I’d invest in female education in some of the world’s poorest societies. I want my child, when he gets to my age, to live in a world of greater equality and great climate resilience. The reason I highlight female education above any other cause is that it cuts across different issues so the ripple effect is massive. When a girl is educated, she typically gets married later, has fewer children, and she typically reinvests 90% of her earnings into her family, which is a much higher figure than the equivalent for men, which passes that human capital to the next generation.