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Portfolio perspectives | Article - 1 Min

Asia & China equities 2021 - Outlook in 3-D: domestic, digitalisation, diversification

CHAO David
2 Authors - Portfolio perspectives
15/02/2021 · 1 Min

This material is intended for Institutional Investors (as defined in the Securities and Futures Act, Chapter 289 of Singapore) only and is not suitable or intended for persons who do not qualify as such.

Chinese and Asian equities roared back in 2020, outperforming peers thanks in no small part to effective control of the COVID pandemic. Asia remains the engine of global growth in 2021, helped by the emergence of significant intra-Asia trade. China, the largest economy in the region, continues its structural transition toward higher quality growth.

Co-authored by Zhikai Chen, CFA, and David Choa, CFA, heads of Asian and greater China equity portfolio management respectively, this new outlook paper explains why Asian and Chinese equities stand to perform well again in 2021:

Asian equities – Asia is the world’s growth engine. It is also the only region whose share of world stock market capitalisation has increased dramatically over the past decade. This is ongoing, yet many investors remain under­exposed to Asia; most invest in Asia via global ETFs. Asia accounts for about 20% of the global market capitalisation, but only constitutes 4% of the MSCI World index. With growing economies, rising household wealth and a structural digital transformation, Asia is home to the next generation of companies catering to meet Asians’ growing needs. This development could be very rewarding for investors in 2021 and beyond.

China equities – A long overdue catch-up of China’s share in global financial flows to match its outsized footprint in global trade is underway. Long-term investment opportunities should reflect the transformation of its growth model. With Beijing’s long-term policy and growth aspirations to make the country a global economic power and the renminbi a global currency, Chinese assets are set to become an asset class of their own rather than part of the emerging market asset class. We advocate active position management. Chinese equities, and A-shares in particular, can provide an excellent environment for alpha generation given the inherent inefficiency of the asset class.

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk. This material is produced for information purposes only and does not constitute: 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. It does not have any regards to the specific investment objectives, financial situation or particular needs of any person. Investors should seek independent professional advice before investing, or in the absence thereof, he/she should consider whether the investments are suitable for him/her.

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