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Since late 2021, stagflation concerns have hit both bond and equity markets, resulting in a double whammy in portfolios, while global growth momentum is slowing. However, many quality companies still manage to generate solid profits despite cost challenges. Diverse earnings outlooks make it essential to pick sectors, regions, and companies with resilient outlooks. To achieve this, we must take into consideration macro, micro, and structural factors.
We believe that despite Europe's slowing, the world economy should remain out of recession as long as the US and ASEAN economies are experiencing resilient growth. We're also hopeful that China's stimulus will start boosting activity in H2 2022. Our exposure is balanced between defensive and cyclical, focusing on businesses with strong market positions and regional resilience in the US and Asia.
The COVID-19 crisis, the Russia-Ukraine conflict, and the sustainability revolution are altering supply chains, labour markets, energy sources, and infrastructure, transforming our globalised world into a more regional one. This transition will require lots of investment that will ultimately boost growth and make it less volatile, but it will also result in higher inflation than in the past decade.
We find it helpful to use the ESG framework to complement financial ratios to really understand how future-proof a company is.
By looking for companies that score well on the macro, micro and structural measures, we can build a portfolio that is fit for the future.
Our investment strategy for 2022 is based on four key trends, supported by diverse high conviction themes.
- Remaking Asia’s Future
- Opportunities in Policy Transition
- Digital Transformation
- Investing for a Sustainable Future
Through our Asian investment themes, we seek quality assets at discounted valuations in equity and bond markets as the region adapts to recent disruptions.
1. Asia’s Green Transformation
Asia stands out as the world’s largest investor in energy transition, accounting for 60 per cent of new global renewable capacity installation in 2021.
Major Asian economies, led by China, have committed to invest significantly to revamp their power mix and industrial processes away from coal power towards renewable energy and electrification. Additionally, The Asian Development Bank estimates that the ASEAN countries will need to invest USD210 billion a year to build climate-resilient infrastructure by 2030.
This investment theme focuses on opportunities in renewable energy, including equipment makers of solar, wind and green hydrogen, energy storage providers, smart grid manufacturers and leaders in the new energy vehicles (NEV) supply chains.
2. Asia’s Consumer Revival
Looking ahead into H2 2022, we expect a more favourable economic reopening outlook for most Asian countries given the encouraging vaccination progress in the region.
As a result, we see attractive opportunities in the domestic leaders in the travel, hospitality, consumption, healthcare and e-commerce sectors. Consumer service industries should also see improvement in profitability this year.
3. Asian Champions at Great Value
The Asia Pacific region has become a hub for many global leaders in the industry. In 2021, among the Fortune Global 500 companies, 231 of them (i.e. 46 per cent) had their headquarters in Asia.
For investors seeking to gain strategic exposure to Asia's structural growth winners, the deep valuation discounts in quality Asian industry leaders present great entry opportunities. Investing in Asian champions with attractive valuations should offer outsized medium-term returns compared to the broader market.
4. Asian Quality Credit
After the sharp correction over the past year, the Asian credit market offers attractive carry opportunities. We focus on quality issuers, as Asian IG bonds account for 80 per cent of the overall Asian credit market.
The HY sector is also reinforced by positive demand vs issuance dynamics. On sector positioning, oil and gas issuers remain our favourite exposure due to tailwinds from elevated energy prices.
To conclude, we focus on quality, income, and diversification to dampen volatility while capturing the potential upside in the second half of the year. In an uncertain world undergoing unprecedented changes, portfolios need to be resilient to cope with volatility, and yet we should not ignore the diversity of investment opportunities.
Discover our latest in-depth investment views and insights in our new brochure, and ask us about specific investment themes.