Asia stock funds see pockets of value after Trump sell-off
04/12/2016 23:00
(Repeats for early Asian trade. No change to text.)
* Growing middle class, lower export dependence support EM
* HSBC AM, Pinebridge like tech, China demand story
By Nichola Saminather
SINGAPORE, Dec 2 (Reuters) - Donald Trump's shock election
victory last month triggered a sell-off in Asian shares on
heightened fears of protectionism - but for some investors, the
selling marks an opportunity to buy into the region's still
compelling consumer story.
Asian emerging market stocks .MIMS00000PUS lost 5.5
percent in the week after the Nov. 8 election and have since
only recovered 1.6 percent. In contrast, the U.S. Dow Jones
Industrial average .DJI is now 4.7 percent above its
pre-election close, thanks to bets U.S. president-elect Trump
will increase fiscal spending.
While Asia's trade-oriented economies are seen as vulnerable
to Trump's ostensibly protectionist proposals, investors say the
fundamentals underpinning the region's large -- and increasingly
affluent -- pool of consumers remain intact.
"Emerging markets have lower exposure to an export-driven
model than is generally assumed," said Nannette
Hechler-Fayd'herbe, head of investment strategy at Credit
Suisse.
"Many emerging markets have a consumer base that's growing,
they have a demographic bonus of a young population ... and a
middle class that is emerging."
Average earnings for the MSCI Asia ex-Japan index
.MIAX00000PUS are forecast to grow 12.5 percent in 2017 from
2016, according to Thomson Reuters I/B/E/S.
The region's stocks, meanwhile, remain undervalued. The MSCI
Asia ex-Japan index is trading at about 1.5 times book value,
versus its 10-year average of 1.8 times. The S&P 500 .SPX is
at 2.8 times book value, compared with its historical mean of
2.2 times.
TRUMP ERA CONSUMPTION
While Trump's election rhetoric has created deep uncertainty
about the future of Asia-U.S. trade, HSBC Global Asset
Management is focusing on the region's consumer demand.
"If you don't know policy, it's very hard in terms of
reacting. We don't want to react to noise," said Sanjiv Duggal,
head of Asia-Pacific and Indian equities at HSBC's asset
management division.
"We're playing partly domestic consumption, but global
consumption as well," said Duggal, who likes Korean cosmetic
companies based on Chinese demand.
He also sees the region's technology companies as unsung
global leaders.
South Korea's Samsung Electronics 005930.KS and Taiwan
Semiconductor Co. 5425.TWO top the HSBC Asia ex-Japan fund,
while Hong Kong-listed Texhong Textile Group 2678.HK and
Dongbu Insurance 012030.KS in South Korea are among the
biggest holdings in its smaller companies fund.
"There are very few firms that have the technology and
scale, there's ongoing demand for their components and products,
and they're very hard to replicate," he added.
Elizabeth Soon, portfolio manager for Asia ex-Japan equities
at Pinebridge Investments, saw value among quality companies,
including those with technological advantages and those
benefiting from Chinese demand.
The biggest holdings of Soon's Asia ex-Japan small-cap fund
are Australian DuluxGroup DLX.AX , with operations in China and
Southeast Asia, and South Korean Mando Corp. 204320.KS , which
is reportedly in talks to supply components for Tesla Motor's
TSLA.O upcoming Model 3 car. urn:newsml:reuters.com:*:nL3N18L28N
Not all Asian stocks are bargains. Rising U.S. yields and a
stronger dollar could hit countries with high external debt,
such as Indonesia and Malaysia, said Francois Theret,
Singapore-based chief investment officer at Emerise, an
affiliate of Natixis Global Asset Management.
And Taiwan, where exporters make up almost two-thirds of the
stock market, is among those most at risk from tougher U.S.
trade policies. But Theret sees regional impact as limited.
"It will prove difficult for Trump's protectionist policies
to be fully implemented, considering consumer-related goods
imports account for about a quarter of the U.S. private sector
consumption," he said.
(Reporting By Nichola Saminather; Editing by Sam Holmes)
((Nichola.Saminather@thomsonreuters.com; +65 6870 3317;))
Keywords: ASIA MARKETS/STOCKS