23 Nov 2021
Hear from Portfolio Manager Charlie Dutton on the investment outlook for Asian equities in 2022.
Asian equities have obviously been very volatile this year given the significant level of regulation which has been coming through in China. However, I think a large amount of that regulation has been misconstrued globally, in terms of the end outcome, and I am actually relatively positive about the regulation that has been put in place, particularly in the China tech sector. I feel we are reaching the end of this regulatory cycle and that most of the regulatory bodies in China have put forward the regulation they require.
I think 2022 could present a compelling opportunity in Chinese equities as a whole because I feel we are now able to move on from this volatile year with greater certainty. Investors will be able to go back and more accurately assess what the economic effect actually is on these businesses going forward in terms of regulation. We believe that – particularly within China tech – there is very little material economic impact from this new regulation coming through. In fact, one could argue that it provides investors with greater certainty around these business models.
I think there will obviously be concern around the likes of Evergrande and what is happening in the property sector but, again, I think the Chinese have an economic system which enables them to have a controlled management of the property cycle going forward. So, I don’t see the macro risk as being too severe.
We believe the underlying fundamentals around Asia as a whole, not just China but looking within India, Korea, Taiwan, still remain incredibly strong and we are very focused on what is occurring within the quality sphere. We are continuing to see the emergence of very strong companies within healthcare, IT and consumer, and the strong, longer-term trends are still in place, so we expect a continuation of that.
While we expect that there could be some macro volatility on a global basis, particularly around inflation concerns and interest rates, we believe these structural long-term growth stories are more able to see through that and have the pricing power to look through inflationary cycles.
There have been so many negative headlines around China that there has been a general de-risking from a global perspective around positioning in China. We believe that has created attractive opportunities opportunity within some stocks, which have had very little impact from what is happening in China from a regulatory perspective.
So, we have been adding to those positions and see a strong outlook for these stocks. I think this will be a theme going forward, in that any bumps in the road with regards to China on a sentiment basis will provide us the opportunity to keep adding to these strong, well-run businesses.
Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.
With Western central-bank policy normalising, economic growth rates diverging and global trade still readjusting to life after lockdown, investors have a complex environment to navigate in 2022.
Ninety One’s portfolio managers assess the outlook across their asset classes and regions.
Our team also takes a deep dive into the outlook for emerging markets, as well as into how sustainability will drive investment outcomes next year and beyond.