Three Asian Growth Stocks for Investing in the World’s Fastest Growing Markets
Pictet’s Asia ex-Japan strategy is a long-only, high-conviction, fundamental-focused portfolio. We focus on cash-generating activities and invest in both structural growth drivers and cyclical inflection opportunities. Asian equities are attractive due to strong corporate return potential and attractive valuations, especially relative to developed markets. A focus on stock selection has been driving the outperformance and the holding period for each stock is typically three to five years.
Asia remains the fastest growing region in the world. It is among the most advanced in e-commerce and fintech. The companies below showcase three of the hottest picks in a variety of industries.
A key player in renewable energies
Innovation across the region is in the spotlight in the renewable energy sector. Sungrow (Shenzhen: 300274) is a key player in the renewable energy production chain. It provides inverters to solar module manufacturers, as well as energy storage solutions (ESS) to solar farm operators. The company is looking to expand its inverter market share with global and domestic leaders, such as Huawei.
Sungrow has benefited from the tailwinds of the global growth of solar farms and the resulting need to capture and store solar energy through its ESS business, as well as China’s long-term policies to increase green energy .
We believe that current energy prices are likely to accelerate the deployment of renewables. What appears to be high short-term multiples (a forward price-to-earnings (p/e) ratio of 30 times estimated 2023 earnings) belies the value of the name due to its long-term structural growth.
A cautious bet on the rebound of Chinese real estate
Midea (Shenzhen: 000333) is a white goods manufacturer whose main product is air conditioners. We believe the company has been unfairly penalized due to its exposure to the Chinese real estate market and, more recently, rising input costs. However, in our view, Midea has managed past increases in input (copper) costs well and will now seek to mitigate the negative impact on margins through efficiencies, price increases and product mix.
We also believe that for China to achieve its growth targets, it will need to tactically address issues in the housing market and adjust its policies to bring buyers back into the market. With Midea’s strong cash flow and net cash position, this should be a surefire way to gain exposure to a rebound in the Chinese property market. At 10.6x forecast earnings for 2023 and a dividend yield of 4.3%, it offers both the security of value and the advantage of growth in an otherwise challenging market.
Asia’s Best Insurer
We watch AIA (Hong Kong: 1299) as the best insurer in Asia. A policy of financial liberalization means that there is a strong long-term structural wind for the growth of the Chinese insurance market. Although the stock has been affected by Covid-19, with the added difficulty that its agents are less able to meet customers in person, we are now seeing the start of an easing of restrictions in Hong Kong.
Given AIA’s strong presence in Asia, we see the title as a good way to help open up travel to mainland China and Hong Kong. Additionally, valuations should be considered reasonable at 1.7 times the 2021 pound and 13.5 times earnings.