Diversification has been a recent key theme among business executives, market analysts and investment advisors.
This is in response to Trump administration’s move to slap 10 to 25 per cent tariffs on goods coming from China, Canada and Mexico. It has also imposed tariffs on steel and aluminium imports, and vowed to impose reciprocal levies on all US trade partners from Apr 2.
These changes in the US administration have highlighted the benefits of diversification, said Rishi Kapoor, vice chairman and chief investment officer at Bahrain-based alternative investment firm Investcorp.
“This thing that had been shortchanged for a period of time… the value, the merits of diversification, that’s now back to the fore,” he told a panel at the WEF symposium.
OPPORTUNITIES IN CHINA
America’s policy moves are also shifting money flows, said Ziad Chalhoub, chief financial officer of Dubai-based Majid Al Futtaim Holding – a conglomerate that owns and operates shopping malls, retail, and hotel establishments in the Middle East and North Africa.
“I think that emerging markets are going to start to grow back up again, and I think that’s going to create a tremendous opportunity for a lot of companies globally, especially within Asia,” he added.
Many like James Soutar, a partner at Hong Kong-based Pacat Capital Management, now see opportunities in China.
“It has been apparent to us for some time that Chinese stocks offer a much more compelling fundamental investment case than their Western counterparts,” Soutar told CNA.
He noted that across various sectors, the firm has found that Chinese companies are outperforming their global peers in terms of margin, returns on capital and equity, and in earnings per share growth.
“To top it off, the shares of those Chinese companies are also trading at a significant valuation discount to global peers,” Soutar noted.
“The market has started to recognise those attributes in recent months, but we believe there is still a long way to go.”
Industry players said they are bracing for speed bumps, given the current geopolitical climate.
Primavera Capital Group’s Hu said tit-for-tat tariffs are a real risk, and that China is vulnerable because it is a trading economy.
“But at the same time, China also has an enormous domestic market and a huge middle-class space,” he noted.
“So if China plays it right to lift up the confidence of average Chinese consumers, if they are willing to spend – domestic demand picks up. That will more than offset whatever the drag caused by tariffs.”
Still, he cautioned that tariffs are bad, especially if they stay in place for the long run.
“I hope the two governments (US and China) will still put the highly charged emotions aside, come to the table to negotiate, to strike a deal; to make sure whatever the tariffs – which are very high – will be here temporarily (and be) lifted in time for each other’s mutual interest (and) the world.”
