Value equities in Asia ex-Japan have had a strong rebound since November 2020, as investors begin to focus on corporate profiles and cashflows as this provides opportunities for bottom-up value investors in Asia, Sundeep Bihani, Portfolio Manager, Eastspring Investments said
In an article, he said that global decarbonisation, the focus on sustainable growth, and the shift to dual supply chains are driving strategic shifts in Asian corporates, leading to far different outcomes in their investing and operating behaviours than the prior decade of asset-light growth.
He said that the change in expectations around inflation and interest rates is refocusing the market’s attention on profitability and free cash flows, unlike the TAM/GMV-only focus of growth investors over the prior decade.
“Similar investing trends around the globe too bode favourably for their suppliers, who are mostly in Asia. We believe the resulting economic cycle in Asia is supportive of value investing. Beneficiaries are likely to be cyclical, old economy and financial stocks, he said.
On banks, Sundeep said that they see significant value in banks in both developed and emerging Asia. “The strategic shift among corporates combined with higher interest rates and higher inflation provide banks with a good opportunity to grow their earnings after years of low margins (in developed economies) and poor asset quality (in emerging economies),” he said. He said that ASEAN banks further benefit from asset quality normalisation coming out of the delayed reopening of their economies over 2021. Market implied returns and investor underweight positioning suggest we are getting paid to take on this normalisation, without running into investor crowding.
