Asia stock funds see pockets of value after Trump sell-off

HL Mando

02/12/2016 09:54

* 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