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Strong fundamentals driving opportunities in Asia, says Barings

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Rising consumption, positive political and market reforms, and the strength of the technology sector are three fundamental developments pointing to superior investment opportunities in Asia, according to Baring Asset Management.

Firms ideally positioned to capitalise include Taiwanese smartphone component manufacturer Largan Precision, Airports of Thailand, and upmarket Korean cosmetic manufacturer AmorePacific.
 
Barings believes that the improved growth outlook across Asia compared to emerging market peers does not come at a premium: in relative terms, emerging Asia markets are trading at close to one standard deviation below historical norms compared to the rest of the emerging universe – this is lower than it has been for years and, Barings believes, indicates an attractive opportunity for investors.
 
HyungJin Lee, Manager of the Baring Eastern Trust and Head of Asian Equities, said at a recent round table: “Rising Asian consumption, driven by supportive demographics across the region, is a key theme underpinning many of the companies we favour in the Baring Eastern Trust. For example, as Asian consumers spend more on travel and leisure as well as cosmetics and healthcare, we find companies with attractive valuations and good execution potential, benefiting from these growing markets.
 
“The potential of technology has been a long-term theme across markets in Asia, but this time the companies are global brands and the opportunities are larger. Recent falls in commodity prices have allowed Asian manufacturers in some industries to benefit from improved profit margins. Add to this the effect of structural change in the region, and we think the outlook for earnings growth for companies is favourable, particularly when compared with emerging market peers.”
 
Largan Precision is a Taiwanese manufacturer of camera lens modules for smartphones, tablets and digital cameras, among other things. It is a global leader in its market, and almost unique in being able to deliver the high volume of components required with the higher spec migration demanded by global technology manufacturers it supplies to. Barings believes that despite widespread penetration in developed markets, premium brand smartphones and tablets still have significant potential in emerging markets, and cites China as an as-yet ‘untapped’ market for premium products of this type.
 
Barings also sees great opportunities as a result of the ‘Chinese Tourism Wave’, part of the wider consumption story across the Asia region. As the Chinese are starting to visit other countries for leisure purposes, stocks such as Airports of Thailand have prospered. Thailand has become the third most popular destination for Chinese tourists in recent years, after Hong Kong and Macau. Airports with convenient duty-free shopping opportunities have been beneficiaries of this ‘wave’, and the trend looks set to increase as the number of Chinese taking foreign trips continues to increase.
 
HyungJin Lee said: “It is only in recent years that many Chinese have taken their first trip abroad, and Thailand is a popular choice. We think companies such as Airports of Thailand stand to benefit or many years from this growth.”
 
Barings’ positive market view towards Asia mirrors increasingly positive sentiment towards the region from UK-based intermediaries. New research1 commissioned by Barings on IFAs and intermediaries in Q2 2015 found 82 per cent are currently ‘favourable’ towards Asian equities, an increase of 23 per cent since Q1 20152.
 

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