Key Insights:

• Global economic recovery is generally taking place.
  
  
• The market has already digested most of the news about future tapering and rate hikes, and thus, may not react as extremely as what happened in February.
  
  
• China’s tightening monetary stance actually means that the economy is doing well.
  
  
• There are still plentiful investment opportunities in China, despite the recent policy overhang.
  
  

Is a global economic recovery really taking place?

Yes, I believe global economic recovery is generally taking place. As a matter of fact, we observed that OECD has revised their GDP growth forecasts upward for a number of major economies, as compared to last quarter. We also see China’s growth revised upward from 7.8% to 8.5%. US has also seen growth upward revisions, despite sequential growth momentum may see signs of slowing down in the recent data releases.

Source: Bloomberg, OECD, as at 15 Jun 2021. Data in [bracket]: last quarter data, as at 31 Mar 2021.

When will the Fed start monetary tightening and tapering on asset purchases?

Recently, I’m seeing a mixed bag of dovish/ hawkish signals from different Fed officials. The Fed has previously mentioned that they will closely monitor 2 factors – inflation and full employment for potential monetary policy changes, and so far their direction has not changed. The recent spike in inflation is largely because of the lack of supply alongside abundant stimulus and demand. I believe inflation may settle down at a more normal level. Currently unemployment rate is at 5.9%, which is still far from the previous trough of 3.5%. Fed did not define what it means by ‘substantial further progress’, however.

10-year US Treasury yield recently dropped to around 1.3 -1.5% level, meaning that the bond market isn’t as worried about inflation as before. Unless I see some unforeseeable surprises, the market has already digested most of the news about future Fed tapering and rate hikes, and thus, may not react as extremely as what happened in February. Looking forward, amid a Fed tapering environment, we believe the delivery of earnings growth would become an increasingly differentiating factor to stock performance.

Is China in a tightening or loosening mode?

What’s your take on growth vs value?

What’s your view with the recent policy overhang for selected sectors in China?

Recently, there are some news relating to the regulatory oversight of the Chinese tech sector on data privacy and security issues. Earlier, we have already seen other strands of regulatory measures on the tech sector from the anti-monopoly and financial aspects. Besides the tech sector, we see new regulatory measures on health care and education related sectors.

While China’s economic fundamentals are already well on track, we believe the regulators, at this time, are keen to ‘restructure’ various sectors up to their standards and requirements, paving way for a more sustainable economic growth looking ahead. No pain, no gain. Long-term investors should be prepared to ride through the short-term volatilities. That said, these temporary uncertainties do not derail the long-term attractiveness in those industries. These industries are linked to innovation and tied closely to the 14^th 5-year plan, as long-term drivers to China’s future growth. My team will continue to monitor the situation closely.

What are the opportunities in Chinese equities?

On a sector basis, we like the following:

• Domestic consumption, such as Consumer Staples sector (F&B, household goods), and Consumer Discretionary sector (sportswear and New Retail)
  
  
• Internet companies, such as E-commerce and online lifestyle platform
  
  
• Healthcare, such as Contract Research Organization (CRO)
  
  
• Environmental protection related companies, such as New Energy sector (new energy production, EVs and battery manufacturers)
  
  
• Property companies with innovation, such as property management firms and online real estate platforms

How about the opportunities in Asian equities?

Overall, my team looks for growth oriented companies that can benefit from Asia’s economic transition and industrial upgrade. At the same time, the team adopts a barbell strategy and also identifies stable income and cyclical stocks that can benefit from the economic recovery.

Below are some of the segments that my team favours:

• Technology and Smart Manufacturing, such as design and manufacturing for semiconductor chips, 5G equipment, industrial automation, and new energy vehicles related production chain (Taiwan, China, South Korea)
  
  
• Internet businesses, such as online entertainment, E-commerce, digital financial services (China, South Korea, Singapore and South East Asia)
  
  
• India’s Information Technology, include Cloud Computing, digital services and consulting
  
  
• Commodities, such as metals and mining (Australia, India)