Strong US Dollar Creates Buying Opportunities in Asia

Emma Wall: Hello and welcome to the Morningstar Series, "Why should I Invest With You?" I'm Emma Wall and I'm joined today by Joanna Kwok, Manager of the JPMorgan Asia Growth Fund to talk about the impact of the strong US dollar on the Asian equity market.

Hi, Joanna.

Joanna Kwok: Good afternoon, Emma.

Wall: So, we're here today to talk about Asia equities. Around the theme of the fact that it's been a bit more challenging over a year, slightly linked to the US dollar strength. Perhaps you could quickly recap about the historic relationship between a strong US dollar and the impact it has on emerging and Asian equities.

Kwok: Sure. So, historically, a stronger US dollar has been negative for Asian equities, and this is what we've seen, US dollar strength has caused this year's kind of weaker Asian equities. However, we believe that US dollar is actually in a downward trend, on a multi-year downward trend and during this period, there will be bouts of US dollar strength. However, the US dollar strength has actually meant Asian equities have become more attractive and for us quality growth investors, this give us more opportunity to add to the names that we like.

Wall: So, then I suppose the next follow-up question is what are all the names you like? Where are the sectors that you're seeing the great opportunities?

Kwok: Well, given that we're quality growth focused, the opportunities we find most are in three sectors and they are the financial sectors, the consumer as well as the technology sector.

Wall: And what about in those sectors? have you got any specific names?

Kwok: Sure. So, within financials we are thinking of the theme about financial deepening and that would be the likes of Indian private sector banks, where we can find opportunities for the private well-managed private sector banks to really gain market share for years to come, given that better run banks and management that they are. And then secondly as for example, Chinese insurance. That's another space where there is still further penetration to go.

Wall: And what about within the consumer space?

Kwok: Well, actually for consumers, there is a lot of areas that we find interesting opportunities, but it all revolves around the lifestyle upgrades that we're seeing amongst Asian consumers. The secular trends we're seeing within that. And within that, you know, there are a lot of examples we can give. For example, smartphones. Why do we buy new smartphones? Really just for two reasons – one, we want a bigger and better screen; and the second, we want to take nicer pictures. And so, you know, we can find interesting global-leading companies that supply to the smartphone food chain. Component maker, such as a camera lens maker we find in Taiwan that sells these triple camera lenses that we're using in the newest iPhone that we're doing.

And then – so that would be for technology. And then the third area is like demographics. And in Asia, we always think about aging population and we would think about healthcare, which we do find quality growth names that we like, but also the younger generation. For example. Chinese Asian tiger moms, which everyone wants their kids to get into good university and it's very difficult in China. So, people pay up for their students to have after-class tutoring. And we find good managed – well-managed companies in that – in after-class tutoring that we like because they have very fragmented, they are the national player and they can gain market share for year to come as well.

Wall: And before the camera started rolling, we were talking about the big name tech stocks and you had an interesting way of looking at what look like quite expensive valuations, all of the big names like Alibaba and Tencent, and you said actually they are not that expensive at the moment.

Kwok: That's right. You know on headline PE, these names may appear to be quite expensive but the way that we look at it, we actually – we're long-term investors, so we have like a five-year outlook for the stock. In terms of if, for example, Alibaba and Tencent, there's still a lot of areas they have yet to monetize. Their monetisation potential given their – kind of their business model really give them a huge opportunity to monetise for years to come. And so, on that basis, on a five-year basis, at the beginning of this year, they were looking expensive. But having retreated in share price, their expected return has now gone up to like a mid-teens range and we would be looking for opportunity to add.

Wall: Joanna, thank you very much.

Kwok: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.