Asia: time to invest again?

Once a very popular region with investors, Asia has fallen somewhat under the radar in recent years. Hindered by worries of China's slowing growth and possible trade wars with the US, sentiment has been hit and, along with it, investment flows into Asian equity funds.

But are things about to change? I read a very interesting article in the FT recently, which suggested the 'Asian Age' would begin in 2020.

The Asian Age begins

According to the United Nations, there are 48 countries in Asia. The region is already home to more than half of the world's population and, next year, it is expected to become home to half the world's middle class and the main beneficiary of their increased spending power. For the first time since the 19th century – when Western countries took the lead thanks to the Industrial Revolution - Asian economies will be larger than the rest of the world combined.

And it's not all about China – although it does dominate the region and is set to overtake the US as the world's largest economy in 2020. India is predicted to have one of the highest economic growth rates in the next couple of years and is the world's third-largest economy – double the size of both Germany and Japan.

Meanwhile, Indonesia is on track to overtake Russia and become the world's seventh-largest economy by 2020, and both Vietnam and Bangladesh have shot up the ranks since the turn of the millennium, rising 17 and 13 places respectively. The Philippines has also joined the party, having become a larger economic force than Belgium.

Is now the time to invest?

There are still key risks. The trade wars could escalate, China's slowing, debt-riddled economy, needs careful management, and we have elections in India in the coming weeks – to name but a few.

But if these issues are resolved, we could see opportunities. Asian stock markets are looking reasonable value and, if re-elected, India's prime minister Modi is very pro-business.

We firmly believe that Asian equities should be a core part of a portfolio for those investing for the long-term. The VT Chelsea Managed funds all have a decent weighting to the region ranging from 11.71%* in the VT Chelsea Managed Cautious Growth fund to 19.43%* in the VT Chelsea Managed Monthly Income fund, which is taken advantage of the improved corporate governance and dividend payouts of companies in the region.

Funds to consider

1. Schroder Asian Income is on the Chelsea Selection and has a current yield of 3.89%**. Manager Richard Sennitt focuses on companies that have been under-priced by the broader markets because of short-term fears, but which he thinks have attractive underlying fundamentals. He will buy stocks that already have a good dividend or which he thinks could be dividend stars of the future.

2. Another Asian income fund on the Chelsea Selection is Guinness Asian Equity Income. It invests in companies across the whole Asia Pacific region, including Australia and is concentrated at just 36 equally-weighted stocks with a 'one-in, one-out' policy. The managers look for companies that can sustainably grow their dividends. The fund's current yield is 4.1%*.

3. If you are not looking for an income element, Matthews Asia Pacific Tiger, which is on the Chelsea Core Selection, is worth a look. Matthews Asia is a specialist Asian investor and this is their flagship fund. The team look for high-quality, capital-light businesses with good corporate governance and will typically have a bias towards consumer-facing companies.

4. Alternatively, you could consider Invesco Asian, which is on the Chelsea Selection. Manager William Lam invests primarily in the shares of companies in Asia and Australasia (excluding Japan). He has a value style of investing and looks for companies where he feels the market is underestimating their earnings growth.

*Source: fund fact sheet, February 2019
**Source: fund fact sheet, March 2019

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Ryan's views are his own and do not constitute financial advice.


Published on 08/04/2019