The Point

Investor confidence is growing in Europe

Europe is looking attractive again compared to global peers, says J O Hambro PM Paul Wild.

After a challenging year, investment flows into European equity funds are positive again after a milder-than-expected winter and successful efforts to rebuild gas storage, says Paul.

European gas prices have fallen back below where they were before the Ukraine conflict, and plentiful supply means they are likely to stay that way for the next year or so, he says.

“In the second half of this year, many European consumers will be facing lower energy bills again.”

The EU economy is proving surprisingly resilient. Eurozone GDP numbers for Q4 were up 0.1 per cent, allaying fears of a recession.

Wild says the extent of the outflows through last year has left most investors very underweight European equities.

“Since 2016, European equity funds have lost about a third of their assets. So, it doesn’t need a sea change of flows to be significant.”

Investing in Asia: The case for Thailand

Stocks in Thailand have disappointed lately for a variety of reasons.

Known as an export base for autos – especially trucks – Thailand has suffered from the advent of electric vehicles.

Tourism – including medical tourism – was upended by Covid and still hasn’t fully recovered. Meanwhile, political uncertainty hasn’t helped.

“Demographically challenged with a comparatively smaller workforce and an ageing population, Thailand faces severe competition from other ASEAN countries such as Vietnam and Indonesia,” says Pendal’s Asian shares PM Samir Mehta.

Samir doesn’t own Thai stocks right now. But cheap valuations prompted him to fly in recently to meet with Thai companies on his watch list.

Thiland is largely a case of “watch and wait” right now, says Samir.

In a new article, he offers a quick overview of the case for investment in Thailand.

Nvidia’s goldmine needs shovel-makers. Here’s one place to find them

Asia does not have an equivalent to the US ‘Magnificent Seven’ tech stocks group.

But a select group of Taiwanese hardware manufacturers can stake claims as the unsung heroes of an AI-driven shift, argues J O Hambro PM Samir Mehta.

Semiconductor maker TSMC is one well known example.  In his latest article Samir outlines another under-the-radar example – Taiwan’s Jentech Precision Industrial.

There is still a great deal of technical development needed in the manufacture of AI chips and servers, Samir says.

Samir describes Jentech Precision Industrial – which he holds in Pendal Asian Share Fund – as “a shovel-maker in Nvidia’s goldmine”.

To reduce the risk of relying on Nvidia’s AI chips, Samir believes other Magnificent Seven stocks could be potential customers for Taiwanese companies like Jentech.

“Many of these Taiwanese firms are the go-to partners of choice with very few alternatives when it comes to leading-edge technologies.”

Global equities: The more AI grows, the smaller the market could be

Not surprisingly, artificial intelligence was one of the big themes in the latest US quarterly reporting.

In Asia there’s a similar level of market excitement, with Taiwanese chipmaker TSMC up 20 per cent this year for example.

But it’s divorced from reality, reckons Pendal Asian Shares PM Samir Mehta.

At TSMC, AI accounts for just 6 per cent of revenue, with the balance of sales coming from stagnant laptop and phone markets, he says.

And the technology’s very success could curtail demand, he cautions.

Enthusiastic long-term AI industry revenue forecasts are often based on growing uptake of per-user licences.

But if AI succeeds in its promise of making business more productive, companies will reduce staffing.

“The effect of raising productivity is going to mean fewer people will need that software because fewer people are employed,” Samir says.

There’s opportunity in China stocks if you know where to look

China’s uncertain economic outlook presents an opportunity for discerning equities investors, argues Pendal’s Asian Share Fund manager, Samir Mehta.

“The Chinese stock markets were doing quite well until about January-February but have now handed back almost all of their returns this year,” says Samir.

“Over the next few years, maybe even a decade or more, we should expect China’s GDP growth to be significantly lower than in the past.

Still, Samir believes it’s a good time to look for Chinese companies with robust market positions and strong cash flows.

“Companies in sectors with concentrated market share positions, or where they possess pricing power and – better still – where there is a focus on cutting costs and generating cash flows without affecting growth.”

Samir names Tencent Music (the Spotify of China) and gaming giant Netease as standouts among others.

Global equities: What investors are missing about south-east Asian banks

Global equities investors might be wary of US and European bank stocks right now.

But this year’s slow-burn banking crisis in the West – which has seen the collapse of three US banks and the demise of Credit Suisse – has so far left Asian banks relatively unscathed, points out Pendal’s Samir Mehta.

Resilience among Southeast Asian banks indicates a growing maturity among regulators and governments in the region that may be missed by investors, says Mehta, who manages Pendal Asian Share Fund.

Experienced investors will recall Southeast Asia’s currencies, markets and banking systems were heavily impacted in the 1997 crisis and GFC.

But the environment for banks has improved in Singapore, Indonesia, Malaysia and even Thailand, says Samir.