Future Returns: Finding Value in Asian Emerging Markets
Where to look in Asia’s emerging markets.
Where to look in Asia’s emerging markets.
Chinese regulators have been cracking down on the nation’s tech companies—sending stock prices reeling—but Frank Brochin, senior portfolio manager in the institutional advisory practice at the Colony Group in Boston, is confident the long-term growth story for China will continue to pay off for investors.
To Brochin, who manages money on behalf of endowments, foundations, and family offices, Chinese stocks will continue to strengthen from long-term growth factors fueling the economy, including the rise of the urban middle class, increasing domestic consumption, and the growth of the services economy.
The story is similar, if not even more attractive, in India and Southeast Asia, making “developing Asia” among the best places to invest in the world today for long-term investors, according to Brochin.
“Unlike other emerging markets, in Asia you have a secular economic and social transformation taking place,” he says. These factors “will give economic growth for the next couple of decades, while at the same time the markets are attractive.”
Penta recently spoke with Brochin about his views on investing in Asian markets, even as declining Asian tech shares contribute to driving emerging market indexes south. For the year through Aug. 23, the iShares MSCI Emerging Markets exchange-traded fund (ticker: EEM) is down 2.33% compared with a 17.4% gain in the iShares MSCI World ETF (URTH).
For institutional investors, Colony invests almost exclusively in active managers in emerging markets who have an on-the-ground presence and can select public and private companies poised to benefit from the dual trends of urbanization and rising domestic consumption.
Why China Remains a Good Bet
The performance of Chinese tech stocks such as Alibaba Group Holding Ltd. (BABA), Tencent Holdings Ltd. (700.Hong Kong), and ride-hailing company Didi Global (DIDI) began grabbing headlines in the fall of 2020 as they attracted increasing attention from the country’s regulators. In November, Ant Group’s anticipated US$3.4 billion initial public offering was suspended after executives of the Alibaba payments firm and Jack Ma, founder and controlling shareholder, met with Chinese regulators.
But Brochin says China’s heightened scrutiny is about catching up to regulations that Western countries, including the U.S., have had in place for years, and they are looking beyond tech to also include pharmaceutical companies, real estate, and other domestic industries.
China is a country emerging from a period of strong economic growth that “suddenly finds itself with Alibaba representing 20% of [the] gross market value of all retail sales in China,” he says. “In effect, they are truly just catching up and trying to align business practices with the long-term interests of the nation.”
In Brochin’s view the crackdowns are “not an assault on private entrepreneurs.” The Chinese Communist Party knows they need continued economic prosperity and economic growth to stay in power, and “they know the private sector provides that prosperity to the people of China,” he says.
India as a “Favourite Place” to Invest
The urbanization and increasing domestic consumption happening in China is also occurring in India, although the social and economic transformation of the country has a longer way to go, Brochin says.
Nearly half the population of India, for instance, is still employed in agriculture or agricultural-related jobs, he says, which points to the potential for growth as that percentage declines.
With only about US$2,000 of gross domestic product per capita in India, compared with closer to US$10,000 of GDP/capita in China, the country has a long runway for growth, Colony said in an earlier report.
India also has “a very young and growing population” versus China, which “has plateaued,” and it is “a more domestically focused economy and a Democracy,” Brochin says.
Also, household expansion in India’s urban areas is growing at about 4.4% a year—faster than its population growth of about 1.1%—because the trend is for multi-generations of families to no longer live under the same roof, according to Colony.
Another benefit: India applies “the rule of law” and its stock market is similar to the west, Brochin says.
“The growth drivers are the same as in China, but will take place over a much longer period of time,” he says, adding that India is the firm’s “favourite place in the world outside of the U.S. where we invest.”
The Benefit of Inefficiencies in Southeast Asia
Colony also favours selective investments in Southeast Asia, noting that the region—from Bangladesh to Indonesia—is home to about 850 million people, more than in the U.S. and Europe combined.
“You have a seriously critical mass of population and a critical mass of economic activity,” Brochin says.
And countries in the region, which include Vietnam, the Philippines, Thailand, and Cambodia, are affected by many of the same growth drivers as China and India as people move from rural areas to the cities. Many Southeast Asian countries, too, are at the very beginning of this growth trajectory, meaning their economies should continue expanding for a couple of decades.
One difference is that the markets are inefficient, volatile, and there is very little stock research—factors that can provide an opportunity for those who know where to look.
In a report, Colony points out that there are more than 4,400 companies trading publicly in Southeast Asia, while the percentage covered by analysts ranges only from 8% in Bangladesh to 42% in Thailand.
“If you use active managers, people who are on the ground who can find companies that few investors have paid attention to, you can do well in Southeast Asia,” Brochin says.
Reprinted by permission of Penta. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: August 24, 2021.
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
The monthly consumer-price index indicator rose 3.4% in the 12 months to February
SYDNEY—Australia’s monthly inflation indicator came in below expectations in February, signalling that price pressures would likely continue to retreat over coming months.
The monthly consumer-price index indicator rose 3.4% in the 12 months to February, according to the latest data from the Australian Bureau of Statistics. Economists had expected a rise in February of 3.5% on year.
Some economists had expected the monthly CPI update to show a bigger rise, fuelled by services inflation which remains an area of concern for the Reserve Bank of Australia.
The better-than-expected inflation outcome will also help offset some of the uncertainty about the outlook for interest rates that arose in financial markets following news last week of a sharp drop in unemployment in February.
The most significant contributors to the February annual increase were housing costs, which climbed 4.6% on year, while food and nonalcoholic beverages rose 3.6% in the same period.
Alcohol and tobacco prices were up 6.1% and insurance and financial services rose 8.4%, the ABS said Wednesday.
Excluding volatile items from the data, the annual CPI rise in February was 3.9%, down from 4.1% in January.
Annual inflation excluding volatile items has continued to slow over the last 14 months from a high of 7.2% in December 2022, the ABS said.
Rents increased 7.6% for the year to February, up from 7.4% in January, reflecting a tight rental market and low vacancy rates across the country.
New dwelling prices rose 4.9% over the year with builders passing through higher costs for labor and materials. Annual new dwelling price increases have been around the 5% mark the past six months, the data showed.
The 3.6% rise in food prices in the 12 months to February was down from the 4.4% in January. It was the lowest annual growth since January 2022.
Insurance costs jumped 16.5% over the past 12 months to February, with rises in premiums across all insurance types due to higher reinsurance, natural disaster and claim costs, the ABS said.
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts