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.