Three Asian recovery stocks with plenty of room to run

Professional investor Ian Hargreaves of the Invesco Asia Trust highlights three of his favourite Asian stocks to buy now.

The V-shaped recovery in Asian equity markets suggests that the region has fared relatively well compared with others. That may ring true given the lower infection rates, fewer deaths and less economic damage incurred by North Asian economies such as Taiwan, Korea and China, but the experience of these countries is not comparable to those of Southeast Asia and India, which have had less success in containing the virus. 

We think the best approach is to invest in companies that are worth more than the market believes. We are looking for new stocks trading at significant discounts to our estimate of fair value, with deep discounts currently available in more cyclical areas of the market, where there is less confidence in the pace of recovery. 

The companies below interest us because we feel that the pandemic is unlikely to change the long-term fundamentals and there is scope for earnings to recover faster than the market expects as conditions normalise. Furthermore, a degree of balance-sheet strength should offer the business some protection should uncertainty linger. 

A finger in every pie

Larsen & Toubro (Mumbai: LT) is an Indian conglomerate with a market-leading engineering and construction (E&C) division. The company has diversified over time, with other businesses in IT services, financial services, property development and equity investment in infrastructure projects. We believe the group has a strong management team and is well positioned to gain market share as construction activity improves after several years of underinvestment in India. Our analysis suggests that Larsen’s core E&C business is being valued below the level it reached during the global financial crisis.

Cashing in on cars

Astra International (Jakarta: ASII) has interests in a wide range of market-leading vehicle-related businesses in Indonesia, including four-wheeler manufacturing for Toyota; two-wheeler manufacturing for Honda; car dealerships and vehicle financing. Astra also own a stake in Indonesia’s largest dealer of Komatsu heavy equipment, United Tractors. The shares have derated significantly given uncertain demand due to Covid-19, having been struggling with slower growth in recent years. While the fundamentals of the Indonesian economy are weak in the short term, we believe that demand for vehicles should eventually grow as GDP per capita rises. Astra should also benefit from new Toyota model launches that are expected in 2021.

Yue Yuen Industrial (Hong Kong: 551) is the world’s largest sports shoe manufacturer, serving global brands such as Nike, Adidas and Asics. Lockdowns and store closures saw a sharp decline in sales. By early next year sales should be getting back to normal. The share price, still around 50% below where it was in January, reflects little hope of recovery. The company has relocated manufacturing capacity outside China and invested in automation and a new enterprise resource planning system to enable it to manage shorter lead times from customers better, which should aid its eventual earnings recovery. The shares are on a single digit price/earnings ratio based on our estimate of normalised earnings – a significant discount to fair value.

Recommended

April price hikes - these are the bills going up in April
Personal finance

April price hikes - these are the bills going up in April

Households will be hit with a series of bill increases from April - here’s what they are and how you can save money.
31 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
31 Mar 2023
Investors flock to NS&I savings after SVB scare
Savings

Investors flock to NS&I savings after SVB scare

Investors are increasingly pumping their cash into the safety-net of NS&I - lured by increased rates and the security of a government-backed savings a…
31 Mar 2023
Nationwide: UK house prices decline at the fastest pace since 2009
House prices

Nationwide: UK house prices decline at the fastest pace since 2009

UK house prices fell for the seventh month in a row in March, Nationwide’s house price index showed.
31 Mar 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall to around £2,000, based on average typical use, for the first time since 2022. We have all the details.
31 Mar 2023
Best areas for buy-to-let in the UK
Buy to let

Best areas for buy-to-let in the UK

If you’re thinking of getting a buy-to-let property you’ll want to know the areas in the country with the highest rental yields
29 Mar 2023
The best one-year fixed savings accounts - March 2023
Savings

The best one-year fixed savings accounts - March 2023

Earn over 4% on one-year fixed savings accounts.
30 Mar 2023