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Investors Should Start Smiling On Asia's "Consumption Recovery" Sectors - UBS

Tom Burroughes, Group Editor , 26 May 2020

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The wealth management house sets out its views on how investors should position in the Asian stock, bond and foreign exchange market as pandemic suppression policies start to unwind.

Investors should consider holding firms which are likely to cash in as consumers start spending again following the easing of COVID-19 restrictions. This will help sectors such as Asian automakers, electronics, beverages and retail, according to UBS.

The Swiss bank updated clients on what it thinks are the smartest ways to position themselves as Asia-Pacific comes back out of the restrictions that have hammered economic growth and jobs over recent months because of the pandemic. 

“As restrictions ease, we see three broad strategies for investors. In the near term, we see value in consumption recovery beneficiaries such as regional auto, consumer electronic, transportation, beverage and retail industries as well as select casinos,” the note, from Mark Haefele, UBS Global Wealth Management chief investment officer, said yesterday. 

“In the medium term, we maintain our preference for affordable growth stocks like leading technology platforms and quality cyclicals in the insurance and banking industries. In the longer term, secular themes like China’s intelligent infrastructure and ASEAN's new economy are likely to get a boost from the COVID-19 pandemic,” Haefele continued. 

Less positively, mainland China telecoms and electronics powerhouse Huawei – assailed in certain Western countries for allegedly being an arm of Beijing’s security apparatus – could suffer, UBS said. (China has denied that the firm is in fact merely a front for the government and spies on people. The US has even been at odds with the UK government for the latter’s use of Huawei in building a 5-G network.)

“The new restrictions on Huawei are likely to be a near-term overhang for shares in Huawei's supply chain companies, whose valuations have returned to January 2020 peaks after a strong recent rally. Consequently, we recommend investors to be selective in Huawei's supply chain companies and to stick with broader tech platform firms,” Haefele said.

Credit in Asia
UBS continues to favour investment grade Asia bonds and, more specifically, BBB-rated bonds. It is more choosy about Asian high-yield debt, preferring Chinese real estate bonds. 

As far as foreign currencies are concerned, UBS is positive on the medium term about regional currencies.

“Overall, Asia ex-Japan equities and regional investment grade bonds are most preferred. Within the region, Chinese and Singapore equities are most preferred, while Hong Kong and Thai equities are least preferred,” the note said. “The tailwind from reopening economies in the region should be stronger than the headwind from US-China tensions. But much still depends on growth, earnings and exit strategies.”

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