“It is incredible that anyone in the US still uses cheques,” says JP Morgan chief investment officer Richard Titherington. “No one in China does. Asia’s innovation in online payments is streets ahead of the US, and the investment in artificial intelligence and machine learning is far greater than the West.”
In the seven technology sub-sectors; gaming, automation, processors, electronics, social media, microblogging and e-commerce, Titherington argues that Asian stocks have far outpaced their developed market – US, Japan and Europe listed – rivals over the past decade.
Where Tencent has returned an incredible 4530% return to shareholders over the past 10 years, Electronic Arts, a US-listed gaming stock, is up only 161%. In electronics, Korea-listed Samsung is up 316%, where Japanese Sony has only returned 17%.
“I know a lot more about the past than I do about the future,” says Titherington. “The winners of the past tend to do even better going forward.”
In 1992 – when Titherington first came to Asia an investor – he says the region was dominated by two sectors; property and banking, and low-end, low-profitability industrial companies. Now it has transformed to dominate the tech space – Amazon may be credited with disrupting the retail sector, but Alibaba is worth several multiples of Amazon. In 1992, Samsung was making washing machines, now it is the global leader in semiconductors.
Valuations Have Soared
This success does not come without a price however, that is, share price appreciation. Titherington admits that while he is very bullish about Asia’s continued dominance of the technological industries, the JP Morgan funds investing in Asian equities have sold off their exposure to both Alibaba and Tencent.
“18 months ago we were overweight the tech sector and were forecasting annual returns of 25% a year for the next five years,” he explained. “Now we have reduced that position and are neutral against the benchmark. We expect returns of around 10% a year for the next five years from this point. That is a worse outlook, but we think still pretty good.”
The JP Morgan Asian equity funds are underweight Indian-listed consumer stocks which they believe to be too expensive, and overweight financial stocks.
“Financial stocks benefit from any pick up in economic growth, which we are positive on, and there is a good structural story in the insurance industry in this part of the world.”
“China is Our Priority”
Speaking in Hong Kong today, Titherington made the case for China being a world leader – and not only tech. “In a decade, there will be only two dominant stock markets, China and the US,” he said.
“China will dominate not just Asia Pacific, but all emerging markets. It is my priority to broaden our coverage of the A-share market. I want JP Morgan to have broader coverage of China A-shares than any other asset manager.”
