Asia – 2023 Outlook 

We continue to be cautious on the rest of the world ex-China this year and highlight our key themes ex-China recovery: we do believe that USD has peaked, and that more geopolitical tension as well as central bank buying will be good for precious metals. We also believe that some commodities, such as copper, are more exposed to a China recovery, and that commodities on the whole have suffered from under-investment in the past decade. For the first half of the year, we park most of our ex-China exposure in metals as we wait for better opportunities in the second half of the year. We have a few idiosyncratic theses scattered around the region, but we err on the side of caution as flows back to China can impact even solid companies elsewhere, particularly the outperformers from last year.

We will FAVOUR CHINA during the first semester

We maintain our overweight in China in the first half of this year as Chinese multiples are still very cheap, and many companies emerge from the last two years with a more benign competitive environment and an accelerating top-line as China re-opens. We think the risk-reward looks more favourable for mid- and small-caps who have survived and will continue repositioning our portfolio away from internet and towards healthcare, industrial automation, and technological and commodity independence. These companies, which are technological leaders in their sectors, will continue to benefit from geopolitical regionalization forces and adverse demographic developments in the Chinese economy. At the same time, we will keep our overweight in consumer for the rest of the year as the pent-up demand will unleash itself through areas like travel, apparel, and leisure spending, and some internet companies will take advantage of the increased advertising spend.

Our priorities going into the second half of the year will be Korea, Taiwan, and Vietnam

Korea is the deepest cyclical of all, and will likely recover first. However, we remain more bearish on the tech cycle than the street, believe that large-cap tech has 20% more downside, and that the 2024 recovery that street is expecting for Korea and Taiwan will be pushed out to 2025. Our analyst has been on the ground in Taiwan for the past month, meeting with 30 companies; we expect to bottom fish these opportunities later in the year as we trim our China and metals positions. Finally, Vietnam, on top of a sharp export drop, is experiencing a political anti-corruption purge not dissimilar to China’s about ten years ago. We will re-enter consumer plays in Vietnam as the peak fear and comparisons to China play out over the next 6 months.

In other words

We are taking advantage of the Chinese rebound, and we aim to exploit the opportunities in the cyclical corrections of Korea, Taiwan, and Vietnam later this year to set the fund up for the next business cycle.