Roy Keenan from Yarra Capital Management shares insights with James Dunn from The Inside Network on the role of active management. The Inside Adviser
After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
As lockdowns end, China, Asia opportunities emerge
News that two major Chinese cities are finally emerging from their COVID-19 lockdown slumber has once again highlighted the huge opportunity set available in Asia. With the economy as much as 12 months behind the rest of the world, if the experience of the likes of Australia and the UK post lockdowns were anything to go by, the economy may well be in the midst of a strong recovery.
And the timing clearly couldn’t be better. Despite suggestions that companies around the world were seeking to diversify their supply chains away from China, the country remains central to the production of almost every major good in the world. Port shutdowns have been a clear driver of inflation, as have production delays.
All this comes with the backdrop of an interest rate cycle that is beginning to turn and send developed economies like the US into a period of slower economic growth. In a recent paper, Mirae Global Investments Australia, a leading ETF and fund provider from Asia, flagged five reasons they believe Asia warrants an allocation in portfolios and why the “momentum behind key trends is still at the very early stages”.
Research confirms that there will be as many as 4.1 billion middle class consumers in the emerging alone by 2030. This, supported by improving economic conditions has the impact of allowing populations to pursue a higher quality of life, resulting in greater consumption, according to Mirae.
The wave of election results in Australia has highlighted the populace’s new focus on climate change. China, whilst less aggressive than many had hoped, aims to be carbon neutral by 2060 and India by 2070, according to Mirae. Given their size and importance in global carbon emissions, this is a significant development. If achieve, it will “require significant investment and commitment to use new, sustainable technologies, processes and materials”.
The global economy has clearly shifted East, with Asia now contributing as much as 39 per cent of all global GDP and now expected to “outpace developed markets” for the foreseeable future. But likely more important is the valuation opportunity, with Mirae suggesting emerging market equities are trading at a 46 per cent discount to developed markets. Given the historical discount has been around 22 per cent, this may well be a significant mispricing opportunity amid a world in transition.
Finally, is the result of the pandemic response and the ability to recover from lockdowns with ‘improving mobility metrics’ supporting another reopening boom. “Asian economies are expected to benefit from a rebound in domestic consumption as well as exports” the paper concludes.
