All this week, we bring you a Guide to What the Experts to Say; the top insights from the Morningstar Investment Conference in London; emerging markets, stock picks and the impact of politics.
Economic growth in Asia will continue to tick up, supporting stock market performance and in turn, dividend yields across the region, according to Ezra Sun, head of Asia for Veritas Asset Management.
Speaking at the Morningstar Investment Conference in London last week, Sun added that pressure from international investors, governments and regulators has seen Asian companies adopt a better corporate governance culture, with greater focus more on shareholder returns.
“If the economic growth in Asia does not seem an attractive enough reason for you to invest in the region, dividends will be in this low return environment. The dividend yield we see here is solid and it will continue to rise,” said Sun.
This is because Asian companies are changing their businesses models.
“Asian businesses are becoming more efficient in its capital allocation, with more focus on capital efficiency. They are also focusing on corporate empire building,” said Sun.
Consumer Behaviour is Changing
Rising spending on leisure and travel, better living standards, growth in technology and automation, and investment in healthcare and renewable energy are themes that support the growth in Asia coming forward, said Sun.
“Consumer behaviour in Asia is changing. In the past, businesses creating cheap goods accounted for the biggest market share and they were highly profitable. But we have seen over the past few years, consumers have changed and are increasingly opting for better quality products as they increase their sense of well-being. It is a desire for a better living standard supported by higher wage growth,” said Sun.
China’s Online Sales Surpass the US
Chinese online sales have been strong and China is now the biggest online market in the world. The size of the Chinese e-commerce market is difficult to ignore. According to Veritas’ data, on 11 November 2016 Alibaba generated $17.8 billion sales in one day, significantly surpassing the online sales in the US history-Black Friday, which totalled $3 billion last year.
“The most important thing is the adoption of technology in China. You don’t need cash at all in China, you can use your mobile to buy everything online. And even you go to the hospital you got to pay by your smartphone,” said Sun.
Mega-Cap Pharma in Asia
Sun also believes there is no reason why a country like India or China could not build up a mega-cap pharmaceutical company like those in the West such as Novartis or GlaxoSmithKline, as Asia has the population and the GDP to support a business of that scale
“Twenty years ago, the most sought after university places in Korea were electrical engineering, a few years later we have Samsung. 10 years ago, life science was very popular in Korea, Taiwan, China, so in the next 10 years, in the short term, you will see some very strong pharma and healthcare companies coming to the fore. We have started seeing the beginnings of those companies and we are very enthusiastic in backing those companies in our fund,” said Sun.
