JP Morgan Asset Management has reduced its overall exposure to technology stocks significantly for the JP Morgan Asia Growth fund as valuations for these stocks become relatively more expensive than previously.
The firm has either exited its stake entirely or reduced exposure in certain tech stocks, Citywire Asia has learnt.
‘We were about 10% overweight a year ago relative to the benchmark and now we are much more neutral,’ said Citywire A-rated manager Mark Davids, who runs the Asia Growth fund.
JP Morgan has reduced exposure to smartphone components, which entered a bit of a down cycle following the poor performance of the iPhone 10.
Davids said last year, the Asia Growth fund saw some good inflows but inflows have been more modest this year. He said volatility in equities markets may have deterred some investors and they may be looking for a chance to buy on the sell-offs.
As of end-February, the Asia Growth fund had about $1.5 billion in assets. Nevertheless, strong earnings growth for Asia ex-Japan equities, as well as synchronised global upswing, have provided a positive backdrop to equity markets.
Within Asia ex-Japan equities, earnings growth has generally accelerated for the past 18 months and remains strong, driven by supply-side reforms in China that have improved the pricing power of companies and a global rebound in economic activity.
What’s more, Asia ex Japan equities are still trading at relatively low-valuations that is slightly lower than mid-cycle, Davids said.
‘Asia’s cycle really only started at the beginning of 2016, so we think there is still quite a bit to go. Companies have been reporting positive results for the last six months,’ he said.
‘We closely monitor the earnings revision ratio, which is still trading at high levels compared to the last six years. We don’t know about the fallout from any trade protectionism or tariff related rhetoric which is making investors jittery.’
Davids said the core strategy for the Asia Growth fund is to focus on quality growth companies, in which the manager tries to put together a concentrated portfolio of the best ideas of its investment team.
On interesting investment themes in Asia, Davids said JP Morgan finds Hong Kong and China life insurance companies, Indian private sector banks as well as Singaporean banks attractive.
In JP Morgan’s view, Hong Kong and China life insurance companies are attractive on a long-term and short-term view, as business trends are strong, valuations are reasonable and there is a compelling structural growth story for these companies due to the massive savings gap, particularly in China.
He added that the Chinese government is also encouraging the life insurance industry to shoulder the burden of providing healthcare and pension products.
Meanwhile, the Indian private sector banks is another attractive area for JPMAM for a long-time, Davids said, adding that it is a high growth market in which 70% of assets remain under the control of state-run banks.
In addition, JP Morgan also likes the more interest rate-sensitive banks in Singapore. The company’s spokesperson said its Asia Growth Fund has been invested for about six months in Singapore banks.
The Singaporean banks are seeing a big improvement in net interest margins because of what’s happening to US interest rates, Davids said.
‘They are on quite attractive valuations and they have been top picks by our country specialists,’ he said.