The Point

Brenton Saunders: What’s driving the ASX this week?

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.”

Brenton Saunders: Three mid-cap themes that ASX investors should consider

Most equities investors know they need to look beyond the ASX50 get better exposure to the fastest-growing industries.

The ASX’s mid-cap space typically covers the 100 biggest companies in the ASX 50-to-150 range.

Three enduring mid-cap themes that should offer good opportunities over time are data centres; transition fuels and decarbonisation; and electric vehicles, argues Pendal PM Brenton Saunders.

“Whether we’re speaking to software-as-a-service companies or corporates, the whole notion of data migration into the cloud and trying to integrate AI into processes at a meaningful level is ubiquitous,” Brenton says. Data centre companies are an integral part of the shift.

A mismatch between the ramping up of renewable power and the decommissioning of old forms of generation also provides opportunities.

“The EV sector finds itself in pain because of over-investment in a bunch of raw materials, particularly lithium,” Brenton says. “But there is absolutely no going back on it.”

Aussie mid-caps that could benefit from India’s growth story

Pendal’s emerging markets team last week highlighted India as a growth story.

This week Pendal Aussie equities PM Brenton Saunders makes the case for a handful of Aussie mid-caps in line to benefit from India’s growth.

“India has around 1.4 billion people. It’s a democracy that’s had a number of false starts in terms of growth, political and economic reform.

“But now it’s had four or five years of achieving reform,” says Brenton, who leads Pendal’s Aussie mid-caps investing strategy.

“Sovereign wealth funds and private equity money are moving into the economy.”

On a recent research trip to India, Brenton observed rising literacy rates, improved education standards and a huge, skilled workforce.

What we learned from OpenAI’s failed coup: don’t bet against capitalism

The failed coup at artificial intelligence leader OpenAI suggests investors are better off ignoring ideology and instead relying on tested market principles such as profit and self-interest.

That’s a lesson investors can take away from the astonishing episode, says Samir Mehta, who manages Pendal’s Asian equities strategy.

The ouster of CEO Sam Altman was engineered by OpenAI board members who reportedly feared that his plans for unbridled development of AI technology posed a threat to humanity.

Altman was later reinstated with the backing of major shareholder Microsoft – and the dissenting board members were replaced.

“It reminded me of when Xi Jinping came down on Chinese companies like Ant Financial and Alibaba’s founder Jack Ma,” says Mehta.

And yet capitalism continues unabated in China, points out Samir. Fast-growing Chinese fast-fashion retailers Shein and Temu are a case in point.

“Chinese and American ideologies are ostensibly diametrically opposite, but when it boils down to business there is very little difference between the two.”

Aussie equities: Three mid-cap themes that look promising

Three themes – energy, data centres and battery raw materials – provide promising opportunities in the ASX mid-cap space at the moment, argues Pendal equities PM Brenton Saunders.

In energy, short-term considerations revolve around oil prices and the geopolitical backdrop, Brenton says.

“It’s not just a function of the conflicts in Israel and Ukraine – but also how the US economy performs especially ahead of the election next year.”

Medium-term opportunities come from companies with strong positions in transition fuels such as natural gas. Longer-term opportunities are around uranium, he says.

Brenton also likes the data centre space as business demand for bandwidth and data storage grows – including via the AI theme.

“And it might be on the nose at the moment, but the demand for batteries and battery materials continues to ramp up aggressively,” he says.

“We are dealing with an oversupply of some raw materials for batteries, and of batteries themselves. But this should clear as EV penetration progresses.”