Mirae Asset, one of the largest Asia-originated investment houses, talks about China, consumption trends and how it sets about picking winners.
China’s economic wobbles have kept much of the market spotlight firmly on Asia. Mirae Asset Global Investments, a firm originating from Asia and with $75 billion of assets under management for clients worldwide, recently set out views about emerging markets and Asia. WealthBriefingAsia put questions to Joohee An, senior portfolio manager at the firm. The comments here were given a few days before the latest plunge in the Chinese equity market.
Please describe Mirae Asset’s approach to emerging market equity investing?
The investment process we employ is bottom up in nature and is fundamentally linked to substantial, thorough on-the-ground research. Our portfolios are actively managed and constructed in a high conviction fashion, which utilises our unified, team-based research approach to investing. We have around 125 professionals worldwide who are involved in the construction of portfolios, which makes it one of the largest in the industry.
The majority of Asian emerging market equity managers aim to exploit the long-term structural potential of the Asian consumer. There are positive demographics, the middle class is continuously expanding – and, in line with this, so are expectations and demand for goods, both luxuries and staples. Chinese retail growth is expected to rise at 12 per cent through 2015 and 2016, which is particularly impressive when you compare this to the world's other major economies. In the US, retail growth is predicted to grow at 2.4 per cent, euro [countries] are at 1.6 per cent and the UK at 1.7 per cent. At Mirae Asset, however, we follow a more malleable, nuanced investment approach that we believe is key as Asia proceeds to the next echelon of consumption.
What are the most important themes currently developing in Asia?
Changing consumption is currently the chief theme in Asia, not exports or investment. However, investors need to understand that a more broad approach to Asian markets is necessary to seize the vast upside potential available.
Asian consumption is certainly not purely focused on just shopping; there are a plethora of other important markets to consider. Healthcare is a large beneficiary of the changing consumption landscape. When a person goes to the hospital for medical treatment, they are spending capital. The increasing wealth and age of Asian populations translates into strong demand for quality medicines and treatments. When they purchase a property, they are utilising financial services. A key trend throughout this theme is the advancement and availability of technology which has created new consumption possibilities; people are now using the internet, their smartphone and apps to access goods and services.
Tourism is another sector that is rapidly evolving, a huge number of Chinese consumers have now reached an income threshold that makes tourism not only viable but a requirement. Currently only 5 per cent of Chinese people hold a passport but this figure is set to rise at a rapid rate as consumers expand their horizons on the back of increased spending power.
Is the Mirae Asset Asia Great Consumer Equity Fund overweight in any sectors and regions, if so, which and why?
In terms of regions, we are currently bullish on India, China, the Philippines and Indonesia. India struggled in the first half of 2015. However, the government achieved notable policy achievements including the auctioning of mining blocks, positive progress towards institutionalising the economy and a large financial inclusion plan. Therefore, I believe that the economy should revive in the near term off the back of increased government expenditure and interest rate cuts by the central bank.
I firmly believe that the recent pessimism surrounding China is not warranted, although a growth recovery is required to justify additional market upticks. The Philippines is a stand-out country with strong demographics and an English language advantage over other Asian countries; I expect growth rates to rebound back to around 5.5 per cent to 6 per cent. Another country that I am bullish towards is the medium term potential offered by Indonesia, although there is an obligation on the government to kick start the investment cycle via infrastructure spending.
From a sector standpoint, I am particularly favourably inclined towards e-commerce and the internet, healthcare and tourism. Although these are not traditional consumer sectors, they naturally represent the changing nature of consumption in Asia. My personal opinion is that these consumer-related sectors often are less susceptible to macro downturns. In particular, healthcare is an integral, fast-growing section as part of the social security theme.
How have consumption trends in Asia changed in recent years?
The most fundamental change to the Asian consumer has been through the evolution and development of technology. But, in the same vein as other structural trends like urbanisation and demographics, the catalysts of the technology theme vary from market to market. For example, China's internet ecosphere has evolved differently to elsewhere as the traditional Western global giants have struggled with regulation, language and cultural preferences.
Alibaba, Tencent (through its QQ social network service) and Baidu continue to dominate the Chinese market. These firms are also strategically placed to exploit the transfer to mobile devices, to monetise online gaming and other web-based services. However in India, the situation is completely different, the top visited websites are all large Silicon Valley/Western names. Facebook, Google, YouTube and Yahoo dominate, as the English-speaking population has enabled them to secure substantial market share early.
Does your investment strategy vary across the different Asian countries/markets?
Many Southeast Asian markets are still under-penetrated and there are certainly still good stocks to be found in the consumer necessities and basics. Staples offer interesting opportunities in the Philippines, Indonesia and Thailand. However, in Northern Asian markets, including China, consumers are moving up from necessities such as clothing and food to the next stage of consumption. The "subsistence" growth trend is being surpassed by the "desire" trend in China, Taiwan, and Hong Kong. We see newer, interesting opportunities arising in tourism, hospitality, e-commerce and Internet in those markets as a result.
But North and South Asia are similar when it comes to a purely cultural theme. For example, favourite foods remain the same; local is always preferred. As such, local companies always have a significant advantage over global food companies. The majority have been present in their respective markets for longer, know a substantial amount more about their loyal customer bases, as well as having an inherent understanding of what actually appeals to an Asian consumer.
Do you invest in mainland China and if so, how do you do this? (Via Hong Kong's equity market, other)?
Yes, we invest in mainland China through investing in H-shares.