In China, JP Morgan Asset Management is taking a larger role in the health care sector while reducing exposure to consumer discretionary, industrials and property.
The group continues to be bullish on private sector banks in India and is adding exposure to attractively priced Indonesian consumer and telecommunication names.
In an interview with Citywire Asia, Davids said in the healthcare space, pharmaceutical names make up a particularly interesting area within the Chinese market.
‘For one thing, rising wealth levels within China seem likely to drive structurally higher expenditure in this sector over the long-term,’ he said.
‘Furthermore, research and development spending in the space has been rising, so the quality of local pharmaceuticals has also been improving.
‘This makes for a powerful combination: identifying investable ways of monetising the domestic demand growth has been a key focus recently.'
On the flipside, Davids and his team have been trimming exposure to Chinese property, consumer discretionary and industrial names.
He said JP Morgan trades are all driven by bottom-up stock selection, as they find greater value elsewhere. To some extent this has been a function of some earnings downgrades for Chinese names.
‘We think those downgrades are a function of cyclical slowdown rather than being symptomatic of any broader fundamental malaise in China.’
In Indonesia, JP Morgan believes that the government and central bank policy is constructive. The emphasis on maintaining rupiah liquidity and stable monetary policies, Davids said, is helpful in addressing macro concerns.
He said by hiking policy rates despite some of the pressure on earnings being felt by the listed sector, Bank Indonesia is sending a prudent signal about the prioritization of macro stability over growth at all costs, which is longer term positive.
'Ultimately, what matters however is the quality of individual business models and management teams, and we remain extremely selective in that respect,' he added.
Davids said banks enjoyed better earnings resilience despite some pressure from fees and net interest margin, which resulted in weaker pre-provision operating profit growth. As such, the market has corrected and selective opportunities have been opening up.
‘Taking a step back, with the significant disruption being felt by various parts of the economy due to e-commerce and heightened competition, we believe it is very much a stock-pickers’ market.
'Our approach is both bottom up and high conviction. As a result, our overweight position in Indonesia is a function of strong opinions about less than half a dozen high quality individual franchises, rather a top down view on the market as a while,’ he concluded.