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A $641 billion asset manager is seeking refuge from the trade war in Indian and Southeast Asian stocks, saying their domestic consumer-driven economies make them the best havens from the burgeoning uncertainty.
Pruksa Iamthongthong, Asian equities investment director for Aberdeen Standard Investments, said her firm is overweight both markets. It’s buying companies that depend on domestic consumption and have strong balance sheets and cash flows.
India and Southeast Asia are “less affected by the vagaries of global trade,” Iamthongthong said in an email.
Aberdeen’s Asia Pacific Equity Fund, where Iamthongthong is one of the managers, has delivered an about 6% return this year through Tuesday’s close, according to data compiled by Bloomberg. The MSCI Asia Pacific Index was close to losing its year-to-date gain this month, buffeted by volatility as trade tensions escalated between the U.S. and China. It’s now up about 3% in 2019.
Iamthongthong said she prefers banks and insurance firms. “We are targeting growing consumption of financial products in Asia where penetration is low as this means there is room for growth,” she said, without mentioning individual stocks. “Insurance is a prime example.”
The Asia Pacific fund counted Housing Development Finance Corp., a provider of housing finance in India, and Bank Central Asia Tbk, an Indonesian lender, among its top 10 holdings as of July 31, according to data compiled by Bloomberg.
To be sure, India and Southeast Asia have their own issues. Consumers have cut spending in India as they turn more pessimistic about jobs amid a slowdown in growth to a five-year low. And Southeast Asia’s largest economies grew in the first half of this year at the weakest pace since the global financial crisis, according to Bloomberg Intelligence Economist Tamara Mast Henderson. The outlook remains weak for next year, she said.
Aberdeen isn’t alone in seeking refuge. On Tuesday, Credit Suisse Group AG wrote in a note that it was turning more to defensive stocks, citing considerable uncertainties regarding the trade war. UBS Global Wealth Management, the world’s largest wealth manager, went underweight on equities for the first time since the euro-zone crisis.
On Wednesday, Chinese officials questioned U.S. President Donald Trump’s claims that China had called to ask for a resumption of trade talks. Trump’s credibility has become a key obstacle for China to reach a lasting deal with the U.S., according to Chinese officials familiar with the talks.
Credit Suisse’s base case assumes no trade deal will be reached before U.S. elections next year, and further escalation is likely before those polls. That stance has led it to go overweight on insurance, utility, communications, real estate, health-care and industrial stocks.
“Our positions give us an overweight in the defensive sectors of 1.21x the benchmark and an underweight in the sensitives equal to 0.84x the benchmark,” Credit Suisse strategists Dan Fineman and Kin Nang Chik wrote in the note.
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