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China Plus One

When the pandemic hit, many “wrote an obituary for China-focused globalisation”, said Megan Greene of Harvard Kennedy School in the FT. But there’s actually little evidence of it slowing down. US imports hit “an all-time high” of $288.5bn in September, and China’s trade surplus has exceeded pre-pandemic levels. True, we don’t know how the geopolitics will “play out”. But what seems more likely than deglobalisation is the developing “China Plus One” strategy: companies keeping factories in China, but hedging their bets elsewhere. Foreign direct investment (FDI) has thus been growing fast in Thailand, Vietnam and Malaysia – spelling opportunities for investors.

Viet opportunity

The market that catches my eye, said Jeff Prestridge in The Mail on Sunday, is Vietnam – a comparatively new Asian tiger, which enjoyed pre-pandemic growth of 7-8%, and seems “set for a big leap”. The Vietnamese stock market is among Asia’s best performing – up more than 30% this year. More of the same is predicted for 2022 as corporate earnings recover – particularly if, as seems likely, Vietnam is reclassified from an embryonic “frontiers” market to a fully- fledged “emerging” market, which will attract the big international investors. Three trusts trading on the London Stock Exchange invest exclusively in Vietnamese companies: VinaCapital Vietnam Opportunity, Vietnam Holding and Vietnam Enterprise. But they’re only for “brave hearts”. A safer bet, says Brian Dennehy of Fund Expert, is a fund broadly invested across Asia, such as Barings ASEAN Frontiers, which has 2.5% of its assets in Vietnam.

India’s stealthy bull

Don’t forget India, said Rob Morgan of Charles Stanley in Investment Week. Thanks to a “stealth” bull market, the country’s main Sensex index is up by almost 50% over one year. Shares are now expensive, but India “remains unique among major economies” for its scope for fast growth: predicted at 9% this year, and around 6% in 2022. The country is increasingly seen “as a natural alternative to China” for outsourcing manufacturing. If you’re looking for “broad exposure to Asia”, with a significant Indian exposure, consider the Stewart Investors Asia Pacific Sustainability fund, which has around 40% of its portfolio in Indian equities.