Sygnia is overweight China and emerging Asia assets for many reasons, the company’s head of investments, Kyle Hulett, said during a webinar on Monday.
These reasons include a growing middle class, the dominance of the region in the production of semiconductors, and the convergence of Covid-19 vaccination rates between emerging and developed markets.
“We think emerging markets, which have slowed down over the last three months relative to the rest of the world, will pick up nicely,’ Hulett said. ‘Therefore, we remain overweight China and emerging markets in our global portfolios.”
Despite Chinese assets being ‘quite expensive’, he forecast that there would be a steady flow of money into China over the next five years as passive funds were allowed to invest more into the country.
‘That is a trend you want to get ahead of. You want to be overweight China and emerging markets now. I think it is a great entry point to emerging markets, which are cheap, even if China is not as cheap,’ Hulett said.
Growing middle class
‘Asia will see the largest increase in the global share of the middle class over the next decade. A rising middle class is very good for an economy. That is where the spending lies,’ he said.
A rising Asian middle class would boost global demand.
‘We are quite excited about that,’ Hulett said.
In the short term, Sygnia was also watching vaccination rates, where emerging markets had lagged developed counterparts like the US and Europe. Hulett said that improved vaccination rates will help emerging markets to recover, at the expense of the US market.
Asia dominant in semiconductors
He added that Asia’s dominance in semiconductor production was also significant.
‘Everything that is connected to the internet has a semiconductor,’ Hulett said. ‘South Korea has Samsung, Taiwan has Taiwan Semiconductor Manufacturing Company (TSMC), and China has Hong Kong-listed Semiconductor Manufacturing International Corporation.
‘So, Asia holds all the major listed semiconductor foundries. That gives them the edge. Not just in production, but in research and development too.’
Hulett said that China continued to grow, although this growth was tapering.
‘So, while it is slowing, we are seeing consumption and services recovering. That is very good for China. China does not want to overheat, and it does not want to be reliant on exports. It does not want to be over-reliant on the rest of the world. It wants to be self-sufficient. That is why it is driving domestic demand and encouraging growth through domestic demand,’ he added.
‘This is very good for China, if you are focused on the right sectors. That is why we are invested in Chinese new economy sectors and avoiding the old economy sectors.
‘Certainly, we want to avoid the material, commodity-linked sectors within China. China’s growth is becoming more focused on the consumer and less focused on materials and housing that will lead to a slowdown in commodity prices and metal prices,’ Hulett said.
This article was first published on Citywire South Africa here, and is republished with permission.