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2021 was a volatile year for Asian equities and emerging markets in general. Omicron concerns, pandemic-related supply disruptions and a crackdown by authorities in China added up to a cocktail of challenges that rattled investors. Although, four reasons indicate that the markets are ripe for rebalancing in 2022, writes June Chua, Portfolio Manager, Asian Equities, at Lombard Odier IM, in this commentary.
Top Asian equity themes in 2022
From our broad bottom-up perspective at LOIM, we see opportunities in Asian equities around three common themes: domestic demand driven by consumption, ongoing digitalisation/digital innovation and the transition to carbon neutrality.
These are, in our view, long-term trends that could be disrupted from time to time by short-term issues – for example, regulations, new Covid-19 variants requiring temporary contact restrictions, and geopolitical tensions. However, we firmly believe that these long-term trends will prevail over a period of several years.
China’s online marketing trend
China’s digital marketing sector came under pressure in 2021 but appears promising in the long term. Strong consumption of digital media by Chinese adults and increased penetration of online retail contributed to digital accounting for 75% of total advertising budgets in China in 2020, compared to a global average of 60%, according to PWC.
But this growth does not seem to have reached saturation point by any means. Rather, new trends such as live streaming are proving attractive to both mass marketers and luxury brands targeting the money of China’s young people. The government’s long-term promotion of the digital economy could also support online marketing in China.
E-commerce boom in ASEAN frontier
With pandemic-related travel restrictions in parts of the ASEAN region, consumers, whether they are in the centre of Singapore, a small town in Malaysia or quarantined in rural Taiwan, will not be turning their backs on the ease of online shopping for all goods, from flip flops, comfort food to antibiotics or even rental treadmill.
Bain & Company estimates that the ASEAN region’s digital economy will be worth $363 bn in 2025 and $1 tn in 2030. Covid-19 accelerated the adoption of digitalization, and the industry remains on a growth trajectory not only in China but across Asia.
Consumer-focused companies and financial institutions in particular clearly see this as a key driver of future growth and are investing massively to offer their customers, especially the younger generation, a carefree journey into the future.
Metaverse: A universe in the making
Metaverse has come to mean more than just current VR (virtual reality) headsets or AR (augmented reality) glasses. No longer considered solely for savvy gamers or young people looking to escape reality, metaverse could also be a gold mine for avid investors.
We are positive on the technology that enables a better immersive experience and helps scale metaverse in a real ecosystem. This technology could be in sensing, display or artificial intelligence, which continues to evolve with huge R&D investment across the supply chain. Luxury brands like Gucci, Balenciaga, and Burberry have already announced plans to invest in metaverse-related development with a digital Gucci bag sold for $4,000 on a gaming platform last year and all eyes will be on how this ecosystem evolves ahead.
June Chua
Portfolio Manager, Asian Equities
Lombard Odier IM
June Chua joined LOIM in June 2021 as a Portfolio Manager in the Asian / Emerging Markets Equities team. She has deep expertise in Asian markets, most recently from her previous role at Harvest Global, where she was Head of Asian Equities.
