When investors are bargain hunting for opportunities in Asia, it’s important to emphasize quality first and foremost compared to other nations like the United States or Europe.
In 2018, investors rode the back of a tech wave spearheaded by the FAANG (Facebook, Amazon, Apple, Netflix, and Google) stocks. With these tech giants laser-focusing on growth and momentum, value investing fell to the wayside.
However, the year-end volatility experienced in 2018 marked a shift back to value. Investors are once again focusing on fundamentals, which include opportunities in Asia, but according to Beini Zhou, a Portfolio Manager at Matthews Asia, they must exercise caution.
“As active managers, we believe the quality of a company’s underlying business and its management should be considered first and foremost in a value investing strategy within Asia, even more so than when investing in the United States or Europe,” wrote Zhou.
The approach utilized at Matthews Asia includes a combination of studying the best companies in their respective sectors, reading people in addition to the numbers, building a mental jigsaw puzzle of global opportunities, assembling the pieces of said puzzle, connecting dots where appropriate, and asking better questions.
China A-Shares a Value Play
For ETF investors seeking value plays in China, they can look at funds like the Xtrackers Harvest CSI 300 China A ETF (NYSEArca: ASHR) or the KraneShares Bosera MSCI China A ETF (NYSEArca: KBA).
“We expect 2019 to be a record year for foreign inflows into the Chinese A-share market. We forecast $70-125 billion of aggregate inflows for passive and active shares combined,” said Morgan Stanley in a note on Wednesday.
The volatility-laden months for U.S. equities near the end of 2018 was a reminder that investors can take advantage of value as a means of defensive positioning with their portfolios. However, the same due diligence regarding volatility is necessary in Asia, which is where value, again, plays a major role.
“As volatility picks up globally, buying stocks at a substantial discount to their intrinsic value can help mitigate volatility,” Zhou noted. “You get a double advantage, first when the initial discount to the fair value narrows and, second, as the fair value grows and compounds over time.”
For more market trends, visit ETF Trends.