JPMorgan Asset Management says there’s one corner of the market that’s set to double in the next three to five years.
Mark Davids, co-manager of the JPMorgan Asia Growth Fund said in a note this week that Asian tech shares are set to soar as the coronavirus speeds up online trends.
“We are still finding most of these tech names to be offering 15% and 25% annualized expected return on a five-year view,” Davids said, adding that the technology “trends that existed prior to the coronavirus have been accelerated.”
Some of the fund’s biggest investments include Chinese e-commerce giant Alibaba (NYSE: BABA), Tencent (OTC: TCEHY), and Taiwan Semiconductor Manufacturing (NYSE: TSM), and the fund has also increased its exposure to JD.com Inc (NASDAQ: JD), and Sea Ltd (NYSE: SE).
“The tables have really turned for Chinese versus American tech stocks,” said Gil Luria, director of research at D.A. Davidson. “China is the only big country that is really past the peak of the pandemic.”
“There are not that many great companies globally where tailwinds are so strong,” added Davis Advisors global portfolio manager Danton Goei, referring to Chinese internet stocks. “They’re a great long-term investment.”
JPMorgan’s Davids, who is a specialist in Asia’s emerging equities, said he also increased the fund’s exposure to China’s consumer-focused stocks and one regional airport. However, he has reduced his allocation to traditional banks, though still likes a few lenders in South Asia and Southeast Asia, as well as insurers in China.
“Banks and insurers that can offer well-designed financial products that are acceptable digitally” should gain market share faster than others, Davids added.
Davids did caution, however, that a second wave of coronavirus outbreaks and an escalation in trade tensions between the U.S. and China pose risks for these equities.
Worries about trade between the world’s two largest economies have been ratcheting up for weeks as President Donald Trump has repeatedly tried to point blame at China over the coronavirus. Trump also mused this week about ending the largest trading relationship in the world as China weighs whether to void or renegotiate the “phase one” trade deal between the two nations.
“We’re not going to renegotiate,” Trump said of the “phase one” deal.
Even still, employees working from remotely and people being compelled to stay at home has underscored the necessity of cloud services, streaming media, e-commerce, and the use of more memory chips and data centers.
And given that, hardware, digital gaming, and e-commerce are “very attractive in the long run,” Davids said.