With Europe and the US entering recession in the last half of this year, Asia, despite a series of severe lockdowns, is facing a brighter future, according to MainFirst portfolio manager Frank Schwarz, in an Investment Officer BE interview, who adds that his favourite Asian investment theme is semiconductors.
Schwarz manages the newly launched MainFirst - Megatrends Asia fund. This equity fund focuses on Asian investment themes such as digitalisation, consumption, automation and decarbonisation.
The fund has invested exclusively in Asia, with stock selection based on a bottom-up analysis. The strategy is clearly focused on growth, with the long-term objective of outperforming the MSCI AC Asia ex Japan index.
“The economy is clearly improving in Asia,” he said. “If we look at the actions of the central banks, you see that the ECB and Fed are in an interest rate increase cycle. In Asia, the situation is much better. The economy is recovering and several Asian banks are now ready to cut interest rates, including China. The fiscal stance is also easing. Asian equities can now start to outperform.”
Of all three economic blocs, Asia is now the best placed, according to Schwarz, but do not forget that new lockdowns in China could still take place. “One risk is the situation in Taiwan. If a new conflict arises between China and Taiwan, this could put pressure on the Chinese and Asian equity markets’.
Sectors
Schwarz is an outspoken advocate of investing in Asian semiconductor companies because 80 percent of global semiconductor production takes place in Asia. “You also have these investment opportunities in Europe and the US, but we expect 80 to 90 per cent of production to eventually take place in China. Ten years ago there were perhaps ten to fifteen companies that could produce high technology, but today Taiwan Semiconductor is the undisputed market leader. Without this company, there would be no data centres running, no PCs or iPhones being produced, and so on. Ten years ago, Intel was way ahead of Taiwan Semiconductor, but Intel has completely lost the battle for technological leadership.”
A second theme is robotics companies in China and Japan, and thirdly investments in the battery technology value chain. “A fourth theme is consumer companies such as Japan’s Shiseido, as they cater to a fast-growing middle class in Asia.” Alternative energy forms, sports equipment commodities are also significant themes.
Top 10
Schwarz listed some of his favourite companies that are also in the top 10. One of the most successful companies he has been investing in since 2016 is BYD. “With this company we anticipate the rise of electric cars all over Asia,” said Schwarz. “Eight of the ten most successful electric models are from Asia. Tesla Model 3 is the most successful non-Asian model, but the rest are all from Asia.”
Other significant positions in the top five are China Tourism Group, Ganfeng Lithium and Contemporary Amperex.
Schwarz mentioned that he and his team have an investment horizon of five to 10 years. “Nobody knows what will happen in the short term. That’s why we look far ahead. We think that semiconductors will become much more important for all kinds of applications and that Asian consumer brands will develop much more strongly.”
Track record
As the fund was launched in October 2021, it does not yet have a long track record. The MainFirst Global Equities Fund that he co-manages has achieved an annualised return of 9.39 per cent over five years.
Frank Schwarz has been with MainFirst since 2012 and has 30 years of industry experience. Between 1992 and 2012 he worked at DB Advisors, part of the Deutsche Bank group.
This story first appeared in Dutch & French on Investment Officer BE.