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Asian equities: Play the long game

Anthony Fensom  |  13 Apr 2016Text size  Decrease  Increase  |  

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Anthony Fensom is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind.


Asian stocks have had a poor start to 2016, with slowing growth in China and capital flight from emerging markets weighing on valuations. However, for longer-term investors, ignoring the region could prove even more costly, according to analysts.

Highlighting the challenge for investors, all of Asia's major bourses have tumbled into the red over the past year. As of 12 April, China's Shanghai and Hong Kong bourses were down by around 25 per cent, Singapore down 19 per cent, Indonesia down 12 per cent, Thailand down 11 per cent and South Korea 5 per cent lower.

Even pin-up star India, Asia's fastest-growing major economy, was showing a drop of around 12 per cent, while Japan's benchmark Nikkei 225 average had fallen by nearly 20 per cent despite the Bank of Japan's extraordinary stimulus measures.

The slide reflects faltering profits including in China, where profits for listed companies grew by just 3 per cent in 2015 compared to 11 per cent a year earlier, according to Bloomberg.

Emerging markets suffered net capital outflows of US$735 billion in 2015 and could see another US$450 billion exit in 2016, according to the Institute of International Finance, which attributed most of the losses to heavy outflows from China.

However, the growth potential for Australian companies in Asia is still valued by investors, including fund manager Platinum Asset Management (PTM), which has been rated by Morningstar as among its Best Stock Ideas for March 2016.

According to Morningstar equities analyst Nathan Zaia, Platinum has a "narrow economic moat thanks to its strong brand," with Morningstar confident the company's investment talent and new initiatives will deliver further growth in funds under management and earnings in the medium term.

Platinum founder Kerr Neilson told The Australian Financial Review in January that investors should not be hesitant in investing in uncertain markets such as Asia. The Platinum International Fund [4505], rated four stars overall by Morningstar, has just 11 per cent allocated in US stocks compared to 20 per cent in Chinese companies, with favourites including Chinese internet portal Tencent and Chinese web services company Baidu, along with South Korea's Samsung.


Buying opportunity

Another Asia bull is Singapore-based Peter Sartori, head of Asian equity at Nikko Asset Management (Nikko AM), who suggests that Asian stocks (excluding Japan) offer a buying opportunity given their current attractive valuations.

"Asian and emerging market equities have not been in favour in recent years, so from a valuation viewpoint Asia stands out due to its history and also relative to other stock markets," he says.

"There's a lot of negative sentiment towards China at the moment. It's well understood that there's a major economic transition under way and we fully acknowledge that it's very challenging, but we think the market is pricing it for something a bit more dire than how it will play out."

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