German asset manager DWS is upbeat about Chinese, Indian and Thai stocks, partly because of their defensive nature, according to Sean Taylor, the company’s chief investment officer for Asia Pacific and head of emerging-market equities.
Mr. Taylor says he likes domestic consumption-related companies in India, especially consumer discretionary stocks.
In China, he is positive on e-commerce, education, tourism and lifestyle-related companies.
He also likes Thai stocks and the Thai baht for their defensive nature in the face of the ongoing US-China trade conflict.
He has also upgraded South Korea to neutral.
"We were underweight Korea, due to the trade conflict [between China and the US]. However, we expect a phase one US-China trade deal to be signed in the near future, and have upgraded Korea to neutral," Mr. Taylor says in an interview with Asia Asset Management.
But he is underweight Taiwanese companies that are in Apple’s supply chain because of the US-China trade conflict.
Apple primarily relies on Chinese companies to assemble its iPhone and other products but 29 of the 195 companies on the US technology giant’s global supplier list are in Taiwan.
Generally, Mr. Taylor sees upside potential in emerging-market stocks but cautions that there is a lack of growth catalysts.
His team is forecasting a return of around 10% for emerging-market stocks in 2020 provided they can attain earnings growth of about 9%.
"Emerging-market earnings will need to come through for flows to move away from the US market to the emerging market," he says.
Mr. Taylor predicts 2020 will be a "tactical year" for fund managers because their country and sector allocations are likely to change depending on the outcome and timing of the US-China trade conflict, and the US presidential election in November.
If there’s a trade deal, he says DWS could become even more overweight on China, and may also shift South Korea to overweight.
On the other hand, he warns that an escalation of the trade tensions may cause downward revisions to Chinese companies’ earnings and further weaken the Chinese currency.
"Changing expectations for the outcome of the US election could re-introduce volatility to equities as early as first quarter 2020 when primary elections start,” he adds.
Frankfurt-based DWS had 719 billion euros (US$798.64 billion) of assets under management as of end-June 2019.