Investment in a Minute - Attractive Opportunities Across India, Japan & China

Key headlines to watch for in the coming weeks

For the first time this year, there do not seem to be tangible new risks or upside catalysts; these days there is a greater focus on research than on trading.

Market participants have been dealing with supply chain disruptions, inflation and recessionary headwinds all year – and in those arenas, there does not seem to be much that could surprise markets in the near term.

We can return our focus to the key long-term opportunities we’ve been discussing all year: corporate governance reform-driven transformation by Japan corporates, the long- term growth opportunities in India, the rise of domestic brands and a localized high tech supply chain in China, along with the increasing purchasing power in southeast Asia.

The most attractive sector

In our view, housing (and its derivatives) in India.

This might seem antithetical to consensus views given the increasing price of money coupled with recession fears, but on a long-term view, the housing sector in India is one of the longest-tailed growth stories in the world.

This will afford investors with lucrative investment opportunities across multiple verticals: housing finance and property developers; cement; consumer discretionary; pipes, paints and adhesives, and other adjacent industry sectors.

The most underrated opportunities

We remain of the view that the long-term earnings growth and equity capital appreciation stories in India are underestimated; fifteen years ago, there were many companies in India with market caps in the USD $500 million to USD $5 billion range – those same companies are worth multiples of those numbers now. That trend will repeat in India again and again for decades.

In India we see valuations as high, but not expensive. The adoption globally of a “China plus one” strategy is creating a once in a generation opportunity for India to accelerate growth in the manufacturing sector.

India’s GDP today is roughly where China’s was 15 years ago; if, in 15 years, India’s GDP is near the size of China’s today, the investment opportunities for active equity managers are numerous and we also believe that they come with large margins of safety – the potential returns are high enough that they afford long-term thinking and may allow for imprecision.

The extent of the change underway in Japanese corporates is viewed as a positive. Abe’s arrows, launched years ago, continue to fly and hit their marks. As such we favour Japan small cap stocks. The USD strength against some currencies (JPY, INR in particular) didn’t help exporters and IT services companies as much as expected; the reversal won’t hurt them much either.

Equities of domestic-facing Chinese companies also present opportunities.

Across sectors in China, the dislocations between price and long-term value are now so wide that we’re seeing

investment opportunities in China we’ve not seen in years. Some of these sectors include healthcare services, electronic components and factory automation, as well as domestic consumer brands.

Be mindful of …

We are cautious on the semiconductor space (memory and SPE) at the moment for multiple reasons. There are new restrictions that are complicating operations, along with the fallout from the FTX collapse, which is reducing demand for cryptocurrency mining. We are also seeing lower spending by consumer for consumer electronics products.

We do however remain positive on the semiconductor space where companies are serving the automotive market and in the silicon carbide space.