Hunting for Gains in Asia Stocks as Market Despairs on Growth

(Bloomberg) -- As growth concerns remain at the forefront, at least one investor is turning his attention to the trade talks that are resuming in Beijing.

William Fong, head of Hong Kong and China equities with Baring Asset Management (Asia) Ltd., says there’s still untapped upside to be had for stocks in the region once a deal is signed. If, and when, the U.S. and China come to an agreement, companies will rush to deploy their capital-spending plans that had been delayed by the conflict, he said.

“If the trade tensions come down, at least in the coming two years there won’t be any new tariffs in force, then a lot of companies will start spending again,” Fong said in an interview in Hong Kong. “The whole economy will turn. It’s very hard to say the current market has already priced this in, because these are incremental positives.”

His positive outlook comes as worries about a global economic slowdown have sent stocks and bond yields plunging this week. The MSCI Asia Pacific Index fell as much as 0.9 percent on Thursday for a third drop in four days, with Japan leading declines in the region.

But with the U.S. and Chinese officials resuming their negotiations, the spotlight is also shifting back to Beijing. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are due to visit the city for high-level talks beginning Thursday, while top Chinese negotiator Vice Premier Liu He plans to travel to the U.S. the following week.

“We’re going to make a very good deal with China,” said U.S. President Donald Trump in a Fox News interview earlier.

Optimism for a trade deal has been one of the key drivers of the already more than 20 percent rally in Chinese equities this year, with the Shanghai Composite Index going from the worst-performing major stock gauge last year to the best in 2019.

Fong, who helps manage the $1.6 billion Barings Hong Kong China Fund that holds both A shares and Hong Kong-listed H shares, sees as much as 20 percent average upside for the stocks in his portfolio through the end of this year. He prefers companies that are part of the new China economy -- those geared towards consumption, technology and services such as insurance, health care and education.

Top holdings in his fund including Tencent Holdings Ltd., Alibaba Group Holding Ltd. and Ping An Insurance Group Co. stand to benefit from increasing spending commitments to growth, he said.

“Spending in the Internet space is normal, if you stop spending your growth will be stopped,” Fong said, noting the easy growth for Tencent has passed with expansion in mobile gaming plateauing. “Tencent needs to invest in some other area to find the next growth driver.”

The tech giant, which has the biggest weighting in the MSCI Asia Pacific Index, last week reported a 32 percent drop in net income, missing estimates by the most in at least a decade. But it’s spending on everything from cloud to entertainment and retail to diversify its revenue streams, and analysts kept a positive view. Shares are up 12 percent this year, bouncing back from their worst-ever annual loss to help fuel the broad equity surge across the region.

“After the rally, investors should pay more attention to individual companies’ delivery of financials,” Fong said. “People will start to differentiate among the better companies -- it will not be a broad-based recovery.”

Stock-Market Summary

• MSCI Asia Pacific Index down 0.5%
• Japan’s Topix index down 1.7%; Nikkei 225 down 1.6%
• Hong Kong’s Hang Seng Index up 0.2%; Hang Seng China Enterprises down 0.1%; Shanghai Composite down 0.9%; CSI 300 down 0.4%
• Taiwan’s Taiex index down 0.1%
• South Korea’s Kospi index down 0.8%; Kospi 200 down 0.8%
• Australia’s S&P/ASX 200 up 0.7%; New Zealand’s S&P/NZX 50 up 0.7%
• India’s S&P BSE Sensex Index up 0.9%; NSE Nifty 50 up 0.9%
• Singapore’s Straits Times Index up 0.1%; Malaysia’s KLCI down 0.1%; Philippine Stock Exchange Index up 0.2%; Jakarta Composite up 0.6%; Thailand’s SET little changed; Vietnam’s VN Index up 0.7%
• S&P 500 e-mini futures little changed after index closed down 0.5% in last session

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cecile Vannucci, Adam Haigh

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