By Crystal Kim
At the New York Society of Security Analysts headquarters in
Times Square, bathed in the light of larger-than-life Kate Upton
video billboard, a dozen experts gathered to discuss all things
Asia. Barron's Crystal Kim went along to hear what is attracting
the attention of U.S. investors and why casinos and Chinese
internet stocks are favored.
Jae Yoon, chief investment officer of strategic allocation at
New York Life Investment Management
Yoon focused on the rise of China and India as pillars of global
growth. "It's probable that Chindia - China and India- will take
over global GDP in the near future," he says.
It isn't a far-fetched notion. Chindia may have just a 22% share
of global GDP currently, but it is quickly closing in on the 50%
share they had in 1820. Yoon gestures at a circle marking the Asia
region on a world map, saying "there are more people living inside
that circle than outside of it."
Anindya Chatterjee, senior portfolio manager at City National
Rochdale Emerging Fund
Chatterjee was enthusiastic about the emergence of a growing
consumer class in Asia. "Emerging Asia is in a sweet spot with the
most attractive demography".
He says that emerging Asia's GDP per capita income based on
purchasing price parity is in the range of $2,000 to $8,000. It is
around these levels that consumption starts to rise. Rising wages
and productivity are also driving growth. "If you focus on domestic
demand and consumer space, you have a good prospect of
outperforming emerging markets overall."
In China, Chatterjee see opportunities in casino and gaming and
e-commerce. He says the Macau gaming sector had enjoyed massive
growth, but then came the Chinese government's crackdown on
corruption. Gaming operators began to lose high-rollers and VIPs,
but Chatterjee is focused on the 99%. "Where there is a lot of
pessimism, there is opportunity. In China [gaming] is culturally
ingrained. There are concerns in VIP gaming, but mass gaming
remains healthy."
Among Chatterjee's top holding is Galaxy Entertainment Group (
0027.HK). The casino operator, which recently traded around HKD50,
is likely to see income grow faster than revenue. Galaxy has high
occupancy rates and he expects it to hit capacity in the next
couple years. Another top holding is China internet stock Tencent
Holdings ( 0700.HK), which has 800 million active users. "The
growth of social networking and chat sites has been phenomenal," he
says.
Laurent Saltiel, chief investment officer of emerging and
international markets at AllianceBernstein
Saltiel was also upbeat about the prospects for China's
e-commerce industry. "The Chinese e-commerce market is growing more
than twice as fast as the U.S. market in dollar terms," he
said.
He explains that China never built a network of high-quality
shopping malls and stores like in the U.S. and Europe. Saltiel sees
consumers bypassing retail stores for online shopping. In addition,
the accessibility of smartphones over the next years should bring
more consumers to the Internet and related products. "There is 35%
penetration in the smartphone market. With the average smartphone
prices dropping below $100, some even near $50, 80-to-90%
penetration is possible. It's just a matter of how fast," he
said.
He pegs revenue growth for the e-commerce market at 30% to 50%
for the next two to three years. Though Saltiel declined to give
specifics, he says the Internet giants will stay giants, contrary
to the theory of a fragmenting market. "The cost of acquiring new
consumers is rising and there are advantages with scale."
Audrey Kaplan, head of international equity team at Federated
Investors
Kaplan sees "an EPS boom" in Japan, particularly among Japanese
exporters. Factors driving the boom include yen depreciation, which
Kaplan explains is at a six-and-a-half year low against the dollar.
"Japan is our highest conviction across Asia, including developed
and emerging," she said. Speaking with Barron's, Kaplan added that
there have been upward earnings revisions for the next two years,
with 63% of analysts revising upwards versus 37% downwards.
Kaplan's view of China is less rosy. Delays to the
much-anticipated Shanghai-Hong Kong Stock Connect scheme is a
"negative indication of domestic investing in China" she says. The
stock-connect scheme was undoubtedly a missed milestone in China's
capital markets, which would have allowed global investors to trade
China shares via Hong Kong and mainland investors access to Hong
Kong-listed equities. Kaplan explains, "It's an indication of
rising political tensions between Hong Kong and China and also
slowing access to foreign companies. The more access, the more open
a market is."
She says there are better opportunities outside of China,
including Taiwan. She highlights cement, transport and
infrastructure companies as attractive. She noted that GDP
forecasts had been climbing, while leading economic indicators had
been rising.
Comments? E-mail us at asiaeditors@barrons.com
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