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Portfolio perspectives | Article - 1 Min

EM/Asia/China equities 2022 outlook: Building back stability

CHAO David
2 Authors - Portfolio perspectives
28/01/2022 · 1 Min

China’s economy has entered a policy-induced downturn, while across other emerging markets, lingering Covid uncertainties, tighter domestic and global monetary conditions and moderating exports imply near-term market volatility. We present our views on the prospects for emerging markets, emerging Asia and China in “EM, Asia, China 2022 market outlook: Building back stability”.

Beijing has tightened its macroeconomic policies and imposed tougher regulatory scrutiny to resolve China’s wealth inequality and asset speculation. The primary focus now is on achieving ‘common prosperity’.

We believe Chinese equities should recover from last year’s style rotation and ongoing regulatory tightening. A more accommodative policy and stronger corporate fundamentals should be positive. We favour sustainable growth companies with solid ESG profiles. Our focus is aligned with China’s main structural trends: Technology & innovation, consumption upgrading and industry consolidation.

There are potential risks including the impact of Covid-19 related uncertainties on consumption; sharp and sudden monetary tightening; and a deeper-than-expected economic slowdown.

The pace at which growth recovers in 2022 will likely differ among other EM economies depending on each country’s Covid tolerance policies, but rising vaccination rates should enable the drivers of growth to broaden from exports to domestic demand.

Positive structural forces across EMs are likely to boost long-term investment opportunities – digitalisation and decarbonisation being key themes to watch.

Stock selection is crucial.

We favour 

  • Selected technology names
  • Innovation enablers and disruptors mainly related to the environmental sphere
  • Turnaround stories in consumption
  • Robust financial companies
  • Those companies connected to the Indian and ASEAN digital economies.

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.

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