2016 EQUITY OUTLOOKASIAN EQUITY SALE –
THE NUMBERS DON’T LIE

Kelvin Gibson, Chief Investment Officer of Equity will be giving you an insight into his views on Asian equities and discusses how China's slowdown will affect his portfolio positioning for 2016.

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Insights

Asia’s headline valuations don’t lie – Asia ex Japan equities are on sale right now. But even more exciting to the team at Eastspring is the huge difference we see between Asian stock prices, offering a value oriented stock picker even better opportunities. We strongly believe that investing in Asia at this point can deliver attractive returns for the medium term investor.

Here are some key take away on the market

The impact of the US rate debate creates large valuation dispersions and emotional price reactions.

As such we find stocks in the broad “cyclical interest rate sensitive” buckets being sold off regardless of fundamentals, creating very interesting medium term value opportunities.

Source: MSCI, Bloomberg, Eastspring Investments, as at 30 September 2015

Investors have now priced in significant value destruction in China and the authorities have helped to inject fear and volatility into equity prices. This combination has pushed MSCI China to a price-to-book ratio of 1.2x (October 2015) and gives us some very interesting stock specific opportunities to take advantage of.

Having been the expensive darlings of Asia we have been underweight the financial sector for some time but we are now finding that Australian banks are beginning to look interesting again. With recent actions to shore up their balance sheets, dividend yields above 6%, attractive valuations and high quality businesses we believe this may be a good opportunity to add some exposure here into 2016.

Those in the commodity space have seen revenue dips with lower commodity prices. But there appears to be little evidence to write off all commodity producers and to assume the world will stop demanding any commodities. Such an extreme view once again offers opportunities to pick the stocks where valuations have fallen too far and do not reflect their medium term prospects.

Asian currencies have been universally weak and volatile relative to the US dollar, with the exception of those fixed / managed such as the Hong Kong dollar. Luckily Asia is not as reliant on US dollar debt nor as heavily geared as was the case in the past. Nonetheless we have been relatively well positioned to avoid those companies heavily laden with US dollar debt.

BIOGRAPHY

Kevin Gibson

Chief Investment Officer, Equity

Kevin joined Eastspring Investments as Chief Investment Officer, Equity in November 2004.

He is responsible for eight Equity focus teams. He also manages Japan ‘Conservative Value’ strategies.

Kevin has over 27 years of financial industry experience, 20 years covering Japanese equities. Prior to joining Eastspring Investments, Kevin was the CIO of HSBC Asset Management (Japan). He also worked for Edinburgh Fund Managers Plc as the Head of Japanese Equities, and UBS Asset Management (formerly Phillips & Drew Fund Management) as a UK fund manager

Kevin holds a MA from University of Aberdeen, UK (1989).