FSSA Investment Managers Martin Lau Managing Partner: What will Happen when the Economy Recovers?
Investment commentary on APAC Equities, by Martin Lau, Managing Partner of FSSA Investment Managers:
FSSA Investment Managers (FSSA IM) is an autonomous team within First Sentier Investors. FSSA IM are bottom-up investors, using fundamental research and analysis to construct high-conviction portfolios, conducting more than a thousand direct company meetings a year, seeking to identify high quality companies that they can invest in for the long term. FSSA IM manages $37.2 billion globally (31/3/21).
What will Happen When the Economy Recovers?
The world has been through a recession due to the pandemic and strict lockdown measures imposed by governments, yet all asset classes, including equities, have had a good year in terms of returns driven by the monetary easing and fiscal stimulus rolled out by central banks last year. We now expect the world to enter a recovery phase, starting from the low base of last year.
Martin Lau, Managing Partner at FSSA Investment Managers, discusses what investors should look for when the economy recovers.
1. Banks are poised to benefit
It is worth highlighting that until recently, the market believed that banks have a rather gloomy future, with low interest rates and pandemic-related uncertainties. We view this as short-term noise. Taking a long-term view, we continue to believe that banks in markets with low credit penetration (such as India and Indonesia) and with reasonable or good profitability should benefit greatly when the economy ultimately recovers.
2. Consumption is here to stay
We remain convinced by the consumption story for Asia. We believe that when Asian consumers get wealthier, they will continue to improve their lifestyles and aspire to spend more on better products. This is particularly so in China.
In terms of recovery themes, we have been focusing on cosmetic companies. Last year, sales of lipstick fell by almost 50% as lockdown measures were implemented worldwide. Most people did not feel the need to wear makeup as they were working from home. However, we believe that cosmetics will be a very profitable business beyond the pandemic in the long term. Companies like Amorepacific, LG Household & Health Care and Shiseido are very profitable businesses, and the market might have overlooked them.
3. Manufacturing and healthcare remain long-term investment themes
We believe that Asian manufacturing companies such as Taiwan Semiconductor (TSMC) and Samsung will continue to upgrade and move up the value-added curve. We also remain firm believers in the healthcare trend in Asia, with companies investing increasing amounts in research and development (R&D) and innovation, especially companies in China and Australia. These trends support our bottom-up stock selection and remain among our key long-term investment themes.
One of the risks which have been seen for this year is the belief that economic recovery and very low interest rates can coexist at the same time. However, there will be increasing uncertainty around interest rates as the market will start to question the sustainability of such historically low rates. Against such a backdrop, it is important to have a reasonably balanced portfolio, with exposure to both long-term investment trends and some of the recovery trends. As long-term, bottom-up investors, we seek to identify companies that are long-term winners beyond the pandemic, with reasonable risk-reward profiles, given the valuations and long-term growth potential.
This is an investment commentary on APAC Equities, by Martin Lau, Managing Partner of FSSA Investment Managers (1/6/21).
FSSA Investment Managers (FSSA IM) is an autonomous team within First Sentier Investors with dedicated investment professionals in Hong Kong, Singapore, Tokyo and Edinburgh. FSSA IM are bottom-up investors, using fundamental research and analysis to construct high-conviction portfolios. They conduct more than a thousand direct company meetings a year, seeking to identify high quality companies that they can invest in for the long term. As responsible, long-term shareholders, FSSA IM have integrated ESG analysis into their investment process and engage extensively on environmental, labour and governance issues. As at 31 March 2021, FSSA IM manages US$37.2 billion on behalf of clients globally.
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