As it becomes increasingly clear that the coronavirus pandemic will have social and economic effects that outlast personnel lockdowns, market participants are re-drawing their long-term trading strategies.
When it comes to Asian equities, Citigroup Inc. and Bank of Singapore are among those with recent, new recommendations. Money managers including T. Rowe Price Group Inc. are holding media briefings. Among the panoply of themes gaining traction: all things online, supply chains decoupling from China and a focus on resilient corporate balance sheets.
Strategy discussions are increasing as economic activity resumes, however slowly. Workers are coming back to factories in China, cinemas and gyms are greeting customers again in Hong Kong, and the Philippines is allowing some businesses to reopen. The MSCI Asia Pacific Index of stocks has recouped about half its virus-triggered losses.
The epidemic has changed the way many people work, live and even have fun. To JPMorgan Asset Management’s Mark Davids, the crisis highlights the importance of cloud technology to support work-from-home, along with online streaming and e-commerce — all leading to more usage of memory chips and sensors.
“These trends existed prior to the crisis, but the crisis just accelerated that,” the portfolio manager said in an interview last week. The firm’s Asia Growth Fund, which Davids co-manages, has beaten 97 percent of peers in the past five years. It counts Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. among its biggest investments. “We still think there’s plenty of upside in some of these names.”
The view is echoed by many firms, including Union Bancaire Privee, which says the pandemic will boost the theme of “digital acceleration” in online learning, entertainment, gaming, shopping, and e-commerce. China’s push toward a digital economy will make 5G and cloud computing priorities for years to come, the firm said in a note May 7.
Quant fund McKinley Capital Management LLC points to companies that provide online diagnostic tools — some with AI — and telemedicine. These will make up “the single most important investment trend in the next couple of years, perhaps the next generation,” according to Chief Executive Officer Rob Gillam. He sees health-care stocks accounting for an increasing share of a typical growth basket.
Then there’s the supply-chain impact. The U.S.-China trade war had already put a focus on the theme of diversifying away from Chinese factories and suppliers, and the pandemic has only enhanced it.
Companies and governments will likely seek to spread out their supply chains and bring them “closer to home,” benefiting players such as warehouse-automation companies, UBS Group AG’s global wealth-management unit said May 7.
Decoupling from China isn’t just gaining popularity in Washington. Asian countries such as Japan are looking to encourage companies to move. And with China’s economic growth slowing, Citigroup sees opportunities for the region’s emerging markets.
“Enter the lower-income parts of emerging Asia — where investment, spurred by supply-chain diversification out of China, FDI incentives and liberalization and infrastructure — could be growth catalysts,” Citigroup economists led by Johanna Chua wrote in a note May 5. Those dynamics could also be triggers for policy reforms, she and her team wrote.
At BNP Paribas Asset Management, Paul Sandhu, the head of multiassets quantitative solutions and client advisory for Asia Pacific, said the pandemic should force investors to reassess countries’ readiness to tackle such crises and ensure industries can continue running so that they are “properly capitalized for their own tail risk.”
Companies that end up surviving the massive demand-and-supply shock wreaked by the coronavirus lockdowns may change their behavior as a result of their experience. Some could shift toward more resilience and, in effect, less risk, according to Eli Lee, head of investment strategy at Bank of Singapore.
Lee expects consolidation and restructuring in sectors that will be challenged by long-term changes in consumer behavior after the crisis — such as airlines, energy, retail malls, autos, hotels and offline leisure.
“We expect companies to ensure stronger balance sheets with greater liquidity, longer-term funding and reduced leverage,” Lee wrote in a note May 5. “For many companies, this portends reduced dividend payouts, reduced buybacks and capital expenditure plans and capital raising from investors.”