Indian pharma, Taiwan tech lure smart money as stocks tumble
Asia's falling stocks have triggered an exodus of funds from the region, but some investors say the sell-off has been indiscriminate and that certain stocks offer compelling buying opportunities.Updated: Sep 03, 2015 22:25 IST
Asia's falling stocks have triggered an exodus of funds from the region, but some investors say the sell-off has been indiscriminate and that certain stocks offer compelling buying opportunities.
The downturn in equities has been exacerbated by steep falls in Asian currencies, which have taken multiple blows from a sputtering Chinese economy, the unexpected 2% devaluation of its yuan currency on August 11, and expectations the US Federal Reserve will raise rates by year-end.
Fears the China growth woes could knock the global economy have spread turmoil in world financial markets, toppling the benchmark MSCI Asia Pacific ex-Japan index 16% this year. China's stocks, the epicentre of the global equities shakeout, have plunged around 40% from their mid-June peak.
But the turbulence hides opportunities, some funds say, with Credit Suisse estimating net selling in emerging Asia ex-China reached a whopping $19.8 billion in the three months to August 28.
"We don't see weaker Asian currencies as a positive for stock markets," said Andrew Gillan, head of Asia ex-Japan equities at Henderson Global Investors. "But it's a little bit unfair to tarnish the whole of Asia as higher risk."
Economic growth in Asia is stronger than elsewhere and profits are "chugging along nicely," he said.
Among the winners are Indian technology firms and drugmakers, which source cheaply locally and earn dollars selling largely in the United
These include Tata Consultancy and Tech Mahindra, according to Henderson and BNP Paribas Investment Partners. The former had a three-month gain of 1.9% and the latter a 2.7% drop by late trade on Wednesday.
Indian drug companies Glenmark Pharmaceuticals and Dr. Reddy's Laboratories, Taiwanese blinds manufacturer Nien Made Enterprise and Korean garment maker Hansae Co., also fit the bill, according to BNPP IP.
Henderson's Indian pharmaceuticals pick is Lupin Ltd., which has gained 5.1%. Lupin gets 43% of revenues from the United States, according to BNPP IP.
In the last three months Glenmark has jumped 26%, Dr. Reddy's Labs 22%, Nien Made 17% and Hansae a whopping 63%.
The safe haven Japanese yen's 3.5% gain this year against the dollar helps Korean carmakers such as Hyundai and Kia Motors, said Josh Crabb, Hong Kong-based head of Asian equities at Old Mutual Global Investors.
"If the world improves they'll sell more cars, and if it gets worse, the won goes down further, so it puts them at an advantage relative to Japan," he said.
Consumer goods makers, particularly those that source and sell locally, are shielded from currency fluctuations and can price competitively against imports, Henderson's Gillan said.
Henderson holds Uni-President Enterprises in Taiwan, which has upgraded earnings this year and risen 18%.
Taiwanese high-end technology firms, whose products' complexity means they face little regional competition, are also deemed good plays.
BNPP IP is positive on Taiwan's Aerospace Industrial Development Corp., which has lost 1.2% this year.
While currency depreciation in a low growth world is unsustainable, "we see this as a good opportunity to buy individual stocks which we have been looking at enviously because of their rich valuations," said Daisuke Nomoto, senior portfolio manager at investment house Columbia Threadneedle in Boston.
"Companies who can finance internally, who have strong balance sheets and/or who have minimal US-dollar debt exposures should be better off," he added.