1.

The strength of China’s economic recovery is unparalleled, in our view. The skill and speed with which authorities dealt with the Covid-19 pandemic resulted in a V-shaped recovery that we believe bodes well for continued strength in the year ahead. Chinese economic policy will likely focus on normalization throughout 2021, using monetary, fiscal or regulatory levers. We also believe that the depth and breadth of the investment opportunities the Chinese equity market offers have grown exponentially. Digitalisation, adoption of technology and further consolidation across certain industries should all feed into the long-term opportunities that we have long been watching unfold in China.

2.

India’s Union Budget was primarily focused on infrastructure and manufacturing to attract capital and augment sustainable long-term growth. An emphasis on infrastructure development should benefit the construction, infrastructure and cement sectors, while plans to increase the foreign direct investment limits in insurance companies bodes well for that sector. A revival of gross domestic product (GDP) growth, combined with the push on infrastructure and industrial growth, as well as a benign interest-rate environment, could support loan growth, which could benefit banks with sizeable corporate lending activity. We see corporate earnings on an uptrend and expect earnings normalization, following the pandemic-related downturn. However, we remain mindful of the risks, including the ongoing pandemic, regional and global geopolitical relations.

3.

As we begin to trend toward economic normalization in 2021, a pivot in investor focus toward the importance of company fundamentals has raised expectations that value stocks may make a comeback. One key area that lagged in 2020 on asset quality and non-performing loan concerns as well as falling interest rates, and that could benefit from greater investor interest in 2021, is financials. We believe that financials remain a key area of secular growth given the low levels of credit penetration across the asset class and continue to focus on dominant, well-managed incumbent banks with strong capitalization levels and robust deposit franchises. While the market was swift in discounting earnings in 2020, our belief that the risk of systemic banking crises was low in the majority of emerging markets given reasonably strong capitalization, regulatory oversight and current policy support, and less credit expansion as compared to developed markets led us maintain a positive view on the sector. Financials are also trading at attractive valuations versus the wider emerging markets asset class.

‹ Previous2021-03-25Next ›