Saturday, 2024 July 13

Opinion: Now may be the time to double down on Chinese and Southeast Asian tech stocks

Emerging market equity across China and Southeast Asia may increasingly represent good value for investors as part of a globally diversified portfolio, and that includes the region’s tech stocks.

Following the markets in recent days – particularly the spearheading of US stock by the FAANG companies (Facebook, Amazon, Apple, Netflix and Google) – I’ve noticed analysts and fund managers increasingly pointing to emerging markets as representing good value at current prices if you can hold over the long term.

“We still like [emerging markets] on a structural basis,” Julian Howard, GAM Head of Multi-Asset Solutions, said last week. “Obviously they’re under a lot of pressure at the moment due to the rising dollar and the trade wars, but I think emerging markets remain the future of growth if you take a multi-year, multi-decade view. That hasn’t intrinsically changed.”

Indeed, emerging markets are trading at a discount of about 30 per cent, Howard believes. That’s based on a price-to-book comparison of the MSCI EM against the MSCI World. The MSCI is a market cap weighted stock market index of companies throughout the world.

“I think it’s not a bad time to be increasingly weighting to emerging markets, if you have the time horizon. If you can extend your x-axis, it’s actually a great time to be involved. It is going to be bumpy for the next 12 months, but if you want to be involved in that structural trend you can’t try and time this by coming in and out. Now is not a bad time to begin a long buy-and-hold period,” Howard concluded.

There’s been a marked shift in sentiment towards emerging markets as representing a once-in-a-cycle opportunity of late. Vanguard’s CIO Greg Davis thinks emerging markets are “quite attractive at this point”. Vanguard is one of the world’s largest investment companies, with more than US$5 trillion in global assets.

“There’s been a significant sell-off throughout the beginning part of this year. A big part of it has been driven by the fact that the Fed continues to raise interest rates, and high-quality dollar assets have become more attractive than some of the alternatives. EM suffered because of that. Our team, when we think about investing in EM, we think there’s value there… fundamentals ultimately look pretty attractive,” Davis said Wednesday.

A third prominent American asset manager pointed to emerging market equities as good value versus the US’s “fair value” this week. Howard Marks, Oaktree Capital’s Co-Chairman, said Wednesday that “my firm likes emerging markets because they have been unliked, unloved, and the real big money in the investment world – the dependable money, the safe money – is made not betting that the things that have gone up a lot will continue, but on betting that the things that have gone down a lot and become unloved will rebound.”

If you’re holding Asian equities – specifically tech stocks like Baidu, Alibaba and Tencent (BAT) in China and their equivalents in Southeast Asia – now may be the time to double down on them as well as the broader MSCI EM index to capture some of that structural, fundamental long-term value that Asia still has to offer.


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