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Amber Sinha, senior portfolio manager of global equities at CIBC asset management.
Covid is a different experience in Asia-Pacific than it is here. So, in that sense the markets and the economy have behaved rather differently. Asia-Pacific as a region has been an underperformer in recent months. So, meaning it hasn’t really kept up with the gains that we’ve seen in Europe and in the U.S. And I will say there are reasons for that.
Some of the countries you mentioned, Malaysia, Vietnam, Pakistan, these are not countries where we have much exposure to in our portfolios. What matters more to our portfolios is larger economies, such as Japan, Korea, China, Hong Kong, Singapore, et cetera. And in those economies the situation on the ground with regards to Covid is not very different from it is here. The numbers are rather low, what is different is just the approach of the governments.
So while we’ve kind of decided to live our lives, get vaccinated, and live our lives here through the pandemic, through the virus, in Asia it seems to be more of a, ‘let’s eradicate this’ type of approach. And because of that, they’ve just been more careful, more regular lockdowns, so people haven’t been able to get out and the recovery for the economy has been delayed. So, that’s certainly reflected in Asian stock prices and would explain some of the under performance.
I would also say, it really doesn’t impact the economy much, but the stock market has been impacted by a very public crackdown by the Chinese government on large Chinese technology companies. And the fact that large technology companies, such as Alibaba, Tencent, are some of the largest companies in Asia having significant declines in their stock prices and have resulted in underperformance by Asian indices in general as well. So, we can put some delayed travel plans and these cracked downs together, that would explain why Asia-Pacific equities have done what they have.
When you’re looking for a sector that has been harder hit in the industry and the underperformance in Asia-Pacific, the Chinese technology companies have to be mentioned first just given the size and scale of the decline. So, what started off the slap on the wrist when Alibaba was trying to IPO the Ant Financial part of its business, has this cascaded into Chinese governments very publicly putting targets on certain sectors of the funding, certain companies as well. And, as a result, the big names like Alibaba, Tencent, have seen a significant drop in their stock prices. So that’s one area where there’s a lot of things that have fallen off at least in the last one month or so. So I would say over the summer of this year the selloff has been more broad in the sense that higher quality companies that are really not in the government’s crosshairs have also seen their stock prices suffer. And that’s one area where one can still find good opportunities.
Now remember, China continues to be a large and elaborately growing economy. And to the extent we can find high quality transactions that are not in the government’s crosshairs and actually enablers in terms of the goals and aspirations of that country. I think those will be a really good basis to look at just because of the opportunity that this volatility has brought upon us.
Travel, I will say is another area again, because of the pandemic success outcomes have been slower to achieve in Asia, the travel-related stocks have taken a breather. There’s been significant correction in a lot of those companies out there.
And again, if we believe that the world at some point will be past the pandemic, and it certainly seems to be the assumption that people are making in the west, then it’s hard to see why Asia cannot overcome it as well. And when they do, again, people are getting back on a plane and on a train and other stocks from that lens look exceptionally cheap. So that will be another area where we are kind of looking for opportunities.
Technology, again, that’s the space we continue to like across all geographies. The big technology waves in the Asia-Pacific region have again been large Chinese internet stocks, that’s Alibaba, Tencent. I would say there’s a lot of dynamism within the semiconductor chain and that happens to lie squarely in Korea and Japan. So, those are areas where we see good opportunities. Now, semiconductor stocks, I will say, don’t look outright cheap, but the right question to be asking could very well be, “Is the fundamentals even better than what investors expect then?” And that’s certainly something that we are doing right now.