Q: How have countries in North Asia contained the spread of COVID-19? What are some of the challenges ahead related to COVID-19 in South and Southeast Asia?
In China, South Korea and Taiwan, the spread of the virus has largely been contained. Although there are risks of localized outbreaks, the region is benefiting from a strong medical infrastructure, robust contact tracing and a population which accepts health care directives issued by authorities. As a result, economic activity is picking up in North Asia.
In South and Southeast Asia, especially in more populous countries such as India and Indonesia, citizens are still grappling with the first major wave of cases. These countries were forced to ease their lockdown measures because the economic cost was too high—a move which fueled a rise in cases. That said, recovery rates in the region remain strong and testing processes are being enhanced to better contain the virus, which leads us to believe the curve will begin to flatten in the near future.
Q: Amid U.S.-China trade tensions, what are some of the risks and opportunities for Asia's private sector?
On the risks side, we've seen greater market volatility in reaction to daily headlines. At the same time, we have also seen many private companies in Asia being quite nimble and proactive in dealing with the associated risks. Private companies are increasing investment in other parts of Asia to augment supply chains including manufacturing activities and assembly functions. We believe India is an attractive destination given the significant end-market demand potential, while Vietnam is appealing because of the established infrastructure and availability of labor.
Q: What's driving the increased weight in China and Hong Kong for the Pacific Tiger Strategy?
We've been intentionally increasing our weight in China for quite some time based on opportunities we identify, particularly as the nature of the Chinese economy shifts away from exports and industrial growth toward services and domestic demand. Recently, holdings in China have held up better than other parts of the Asia region, which has also increased the portfolio's weight to China. We find opportunities in the consumer discretionary and technology side of China and continue to diversify our holdings. The portfolio's weight in Chinese financials has focused on insurance and brokerage companies to benefit from the growing wealth management and protection demand as income grows.
Q: What's behind the growing exposure to information technology in the portfolio?
We view our increasing weight in the technology sector as a continuation of our investment philosophy, which is focused on identifying sustainable growth. We are seeing more technology companies with sustainable rather than cyclical characteristics, both in the hardware and software industries (especially in the hardware), where we have found multiple companies benefiting from increasing pricing power.
Q: What is your outlook for the second half of 2020 and beyond?
We continue to see a bifurcated market in Asia. Certain sectors—such as technology, consumer discretionary and health care—continue to enjoy valuations that are creeping higher while other sectors are less favored. This dichotomy is perhaps most evident in China: If you look at the valuation for the MSCI China Index excluding several of the top names, it is somewhere in the low teens; it hasn't changed much. We are looking to identify businesses, in sectors like financials and industrials, where the combination of risk-reward remains attractive for the Strategy.
The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. Investment involves risk. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Past performance is no guarantee of future results. The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.
© Matthews Asia
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