We view ourselves as “top-down stock pickers”, meaning we take the macroeconomic environment into account, while looking to identify the best companies operating in the Asia Pacific (ex Japan) region. By enlisting top-down views to aid our stock picking, we believe we can better identify the companies that are more likely to outperform in different market environments. Indeed, by being selective and staying focused on identifying companies with key attributes, it’s been possible to avoid some of the sharpest sell-offs in 2022.
Cautiously optimistic
Looking forward to 2023, we expect global inflationary pressures to ease somewhat, though we think inflation is unlikely to fall quickly, and will probably remain elevated compared to pre-Covid levels. We would be surprised if countries in the developed world were able to achieve target inflation levels of around 2% any time soon. We anticipate lower global economic growth in 2023, though we do still expect to see growth in earnings and dividends coming from a number of companies we hold.

In terms of geopolitics, elevated tensions between China and the West, particularly the US, are likely to continue, but we do not expect to see escalations to the point of military conflict in Taiwan. While some market participants are now expecting a rebound in the Chinese economy, we are not as optimistic, instead believing that its economy is on a downwards trajectory over the longer term.
Investing in Asia doesn’t have to mean China
As such, we do not have any exposure to China after selling out of our remaining positions in the summer of 2022. We have become increasingly concerned about China’s political nature, both domestically and in relation to other countries, and we think it is likely to be a low growth command economy going forward due to a combination of state intervention and demographics. At China’s 20th Party Congress in October, President Xi Jinping was confirmed for a third term as Party Leader, further consolidating power with a leadership shake-up. While Xi remains in power, we do not anticipate re-investing in China. We do still have exposure to China’s economy though, through successful companies located elsewhere in the region that sell to it.

In stark contrast, we are particularly positive about the outlook for Australia; on a country level it is the largest weighting in our Asian Income strategy. We expect Australia to outperform many of its developed market peers over the longer term. It is a fully functioning democracy, it has a productive workforce, and it is home to many successful companies with significant market shares and solid barriers to entry, with very few state-owned enterprises. Corporate governance is particularly strong, and we believe Australia faces far fewer longer-term environmental risks than many other countries do in the region, and globally.

Elsewhere, we really like Singapore, which is home to many attractive businesses with revenues from across Southeast Asia. In addition, its flexible immigration policy and stable economy mean we are seeing notable numbers of wealthy Chinese residents deciding to relocate there, a trend we expect to continue, and which should benefit Singapore.

Outside of more developed Asia, we also have exposure to India, which offers strong growth opportunities, including financial inclusion. We recently opened a position in an Indian private sector bank, which we believe should benefit from this trend. In the next decade, India is expected to contribute about 20% of total global growth (source: Morgan Stanley).
Seeking companies with key attributes
We do not identify as growth or value investors, instead looking for a combination of the two. As such, we prefer those companies that look after their balance sheets, and those that are able – and willing – to share their profits with shareholders, with proven management teams and business models, reducing the need to speculate.

We were pleased with the resilience of the companies held in our strategy in 2022, and, while we cannot be certain what 2023 will bring, we continue to believe we are well positioned as we move into the new year. Many of the companies we invest in are already considered global leaders in their respective sectors, and we think the characteristics of the companies held in our strategy mean they should be able to withstand a recession, or even come out the other side stronger than their competitors.
Outlook 2023: Asia Pacific offers a wealth of income and growth opportunities
Investment risks
When investing in developing geographical markets there is a greater risk of volatility due to political and economic change, fees and expenses tend to be higher than in western markets. These markets are typically less liquid, with trading and settlement systems that are generally less reliable than in developed markets, which may result in large price movements or losses to the investment.

The value of active minds: independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

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