Pictet’s Asia ex-Japan strategy is a long-only, high conviction and fundamentally driven portfolio. We focus on cash-generative businesses and invest in both structural compounders and cyclical-inflection opportunities. Asian equities are attractive due to the strong earning potential of companies and appealing valuations, especially relative to developed markets. A focus on stock selection has been the driver of outperformance and the holding period for each stock is typically three to five years.
Asia remains the fastest-growing region in the world. It is among the most advanced in terms of e-commerce and fintech. The companies below showcase three of the most interesting picks across a variety of sectors.
A key player in renewables
Innovation across the region is on show in the renewable energy sector. Sungrow (Shenzhen: 300274) is a key player in the renewable energy manufacturing chain. It supplies inverters to solar module makers, as well as energy storage solutions (ESS) to solar farm operators. The company is looking to expand its inverter market share from both global and domestic leaders, such as Huawei.
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Sungrow has benefited from strong tailwinds from global solar farm growth and the accompanying need to capture and store solar energy via its ESS business, as well as from China’s long-term policies of increasing green energy.
We believe current energy prices are likely to accelerate the renewables roll-out. What seem to be high near-term multiples (a forward price/earnings (p/e) ratio of 30 times estimated 2023 earnings) belie the value in the name due to its long-term, structural growth.
A safe play on China’s real-estate rebound
Midea (Shenzhen: 000333) is a white-goods manufacturer whose main product is air conditioners. We believe the company has been unfairly punished due to its exposure to the Chinese real-estate market and, more recently, to rising input costs. However, in our view Midea has managed past surges in input costs (copper) well and will now look to mitigate adverse effects on margins through efficiency gains, price increases and product mix.
We also believe that in order for China to reach its growth targets, it will have to address the real-estate market’s issues tactically and adjust policies so that buyers come back into the market. With Midea’s strong cash flow and net cash position, this should be a safe way to gain exposure to a Chinese property market rebound. At 10.6 times forecast 2023 earnings and a 4.3% dividend yield, it provides both the safety of value and the upside of growth in an otherwise difficult market.
Asia’s best insurer
We view AIA (Hong Kong: 1299) as Asia’s best insurer. A policy of financial liberalisation means there is a strong long-term structural tailwind to growth in the Chinese insurance market. Although the stock has been affected by Covid-19, with the added difficulty of its agents being less able to meet clients in person, we are now seeing the beginning of loosening restrictions in Hong Kong.
Given AIA’s strong presence across Asia, we consider the stock a good way to play an opening up of travel in mainland China and Hong Kong. In addition, valuations should be considered reasonable at 1.7 times 2021 book and 13.5 times earnings.
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