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Bank of Ayudhya Public Company Limited by High Net-Worth Division recently held a seminar titled "Global Stocks 2023: A Glimmer of Light After the Storm", where investment experts from Krungsri Asset Management Company Limited (Krungsri Asset Management), and Ballie Gifford, the global investment management firm have been invited to provide updates and insights on the current investment situation, as well as future trends and directions of investment in equity markets across the world for 2023. Their insights also include investment opportunities and risk factors, strategies for the funds’ stock selection, and information on past performance and expected future performance. In this respect, the market faced volatility during the first quarter due to various factors such as the inflation crisis, monetary policy and interest rate hikes of the US Federal Reserve, banking crisis, all of which have affected investment in risk assets around the world. However, amidst the crisis and market volatility, there are still investment opportunities. At the seminar, Krungsri Asset Management has recommended two most potential funds investing through Baillie Gifford’s funds for investment this year, namely Krungsri Global Growth Fund (KFGG) and Krungsri Asian Equity Hedged FX Fund (KFHASIA), which have been expected to recover from the bottom with a huge opportunity to generate outstanding performance when the crisis is over.
Mr. Win Phromphaet, Krungsri Executive Vice President, Head of High Net-Worth Division, Bank of Ayudhya, shared his insights into the current macroeconomic outlook. He stated that the recent market fluctuations resulting from banking issues, such as those experienced by Silicon Valley Bank (SVB), Credit Suisse Bank, and Deutsch Bank would have limited impact as they are internal problems specific to those banks, rather than an indicative of wider global banking sector crisis. Furthermore, he emphasized that these banks already have the mechanisms in place to resolve their issues quickly, which should alleviate investor concerns soon.
According to Mr. Win, inflation has been a significant risk factor causing continuous market fluctuations over the past year. However, it is noted that inflation may be coming to an end due to the drop in global oil prices. Currently, the market is thus closely watching the direction of the Federal Reserve's interest rates policy. If inflation continues to persist at a high level, interest rates are expected to rise again in May, potentially reaching their highest point. However, it is anticipated that interest rates will decrease next year. If the FED signals a halt to interest rate increases, it would be beneficial for the equity market, particularly for tech stocks that stand to gain from lower interest rates. This would create an opportunity to invest in growth stocks once again. During the first quarter, the market responded positively to these factors, with the NASDAQ Composite Index outperforming the S&P index by 9.55%. (Source: TradingView as of 20 Mar. 2023)
Mr. Win added that, investing in growth stocks at this time may be more attractive because the valuations of tech stocks have decreased significantly in the past two years, creating an appealing investment opportunity. Furthermore, growth stocks typically have lower levels of debt, which can enable them to generate higher earnings and offer greater potential upside from their current price levels.
Source: Guide to the Markets US 1Q 2023 by JPMorgan Asset Management as of 31 Dec. 2022
Mr. Stewart Hogg, an investment specialist from Baillie Gifford's Long Term Global Growth Fund, the master fund of KFGG, said growth stocks often exhibit high levels of volatility, but this volatility is typically short-lived. Market corrections, which may cause some stocks to drop sharply, can be viewed as good investment opportunities. The fund's stock selection strategy focuses on identifying stocks with strong growth potential and investing in them for a long-term period of at least five years. As the investment horizon lengthens, market volatility typically narrows. The fund aims to concentrate its investments in only 30-40 well-chosen stocks. In terms of framework for securities’ selection, fund managers will look for stocks that have significant dropped in price but still have attractive fundamentals, which will push them to have potential to generate impressive returns for investors. In this respect, the speaker gave an example of 3,000 companies whose stock prices have dropped at over 50% in 1999, where one of third of them or 1,000 companies were able to restore their profits within five years. The fund will also analyze the stock's past performance over a five-year period, focusing on consistent revenue growth of more than 30%, earnings growth of more than 20%, and free cash flow of no less than 35%. Stocks that meet these criteria are considered to be growth stocks with high upside potential.
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Source: Baillie Gifford Worldwide Long Term Global Growth Fund as of Mar. 2023
Currently, the fund is particularly interested in certain stocks, such as Nio, China's electric car manufacturer, whose stock price has dropped significantly by over 50% in 2022, despite a significant increase of 25% in the penetration rate of electric cars in recent years. Another stock of interest is Spotify, whose stock price has dropped by over 70%, despite the number of active users increasing by more than 40% over the past five years, and the company consistently generating free cash flow for the past 10 quarters. Based on these factors, the fund sees potential for investment in these stocks. (Source: Baillie Gifford as of 31 Dec. 2022)
Ms. Jennifer Loeng, an investment specialist from Baillie Gifford Pacific Fund, the master fund of KFHASIA, highlights the factors that have affected the investment climate in Asia, including the COVID-19 crisis, lockdowns, inflation, and rate hikes. However, she believes that once the crisis subsides, there is potential for a quick recovery in the Asia Pacific region. According to her, many companies in the region exhibit various forms of growth potential. For instance, some companies offer the potential for steady, long-term growth, such as China's Ping An insurance company or Taiwan's TSMC semiconductor company. Others, such as China's Meituan or South Korea's Coupang, have the potential to grow at a fast pace. Additionally, there are companies that have exhibited surprise growth, surpassing expectations, such as the South Korean Samsung company, despite being a large company.
Source: Baillie Gifford & Co as of Mar. 2023
Source: MSCI, Baillie Gifford & Co as of 28 Feb. 2023 | Totals may not sum due to rounding. Cash are excluded.
Currently, Baillie Gifford Pacific Fund is overweighting its investment in several countries that it finds attractive, including Vietnam, which offers lower wages and is therefore becoming an important production base for foreign direct investment. China is also of interest due to its reopening policies and high purchasing power of Chinese consumers. Indonesia is another country with significant growth potential thanks to its vast nickel reserves of more than 20% ratio in the world, which are crucial in the production of electric vehicles. India is currently experiencing great transformational changes, including large-scale infrastructure investments to support the country's growth. According to Ms. Leong, the fund has over 30 years of experience investing in the Asian stock market, with 75 experts dedicated to selecting the best assets for investment. It currently invests in about 80 carefully chosen companies across Asia Pacific (excluding Japan) and diversifies investments across various industries to manage risk, with a focus on long-term investment. The fund has outperformed the MSCI AC Asia (ex Japan) by at least 5% consistently.
Mr. Kiattisak Preecha-anusorn, Vice President for Alternative Investment at Krungsri Asset Management, highlighted the strong growth potential of Asia Pacific (ex Japan) stocks driven by several factors, including China's reopening, the semiconductor industry’s recovery in Taiwan, and the significant infrastructure investments in India. Furthermore, the Asia Pacific equity market currently trades at a P/E ratio of only 12 times, while inflation is at a modest level of 2-3%, making it an attractive opportunity for investment. Economic data in the region also tends to recover, making it more appealing for foreign capital to flow into the region.
Source: Goldman Sachs Global Investment Research as of 24 Feb. 2023
However, despite the huge investment opportunities, it is noted that there are still risk factors that can affect stock performance. One of these factors is the situation in the US stock market and the US dollar index. If the rate hikes continue, it will affect the global stock markets as a whole. In the case that the dollar appreciates, it will create a negative impact on the Asian stock market. However, Krungsri Asset Management believes that in the long-term perspective, the dollar is going to depreciate, which will have a positive impact on Asian stocks, enabling them to grow further and bring outstanding performance.
Source: Bloomberg as of 16 Mar. 2023
At the same time, tech stock also has an upside with an average potential growth of 25% as the industry is expected to have passed the bottom level and is now on track for recovery. This growth can be driven by the revenue and earnings growth of companies, as seen in the rise of digital media advertising from 60% in 2021 to 71% in 2022, with further increases expected. Additionally, e-commerce has returned to normal growth, and investment in software has increased. Furthermore, the P/E ratio of tech stocks has decreased from 40 times to 23 times, making it an attractive valuation. (Source Credit Suisse Research, Refinitiv Datastream as of 27 Feb. 2023)
Mr. Kiattisak concluded that the current situation presents a good timing to reinvest in Asia, which can be achieved through investing in the KFHASIA fund. For investors seeking growth or tech stocks, the KFGG fund may be a suitable option. Investors can make a convenient investment decision through Krungsri @ccess Mobile according to funds’ dealing dates.
For more fund details, click: KFHASIA-A | KFGG-A
Disclaimers & investment policies
- The information contained in this document is accurate at the time of publication but does not provide any warranty of its accuracy. Similarly, any opinions or estimates included herein constitute a judgment as of the time of publication. All information, opinions and estimates are subject to change without notice.
- KFGG invests in the master fund named Baillie Gifford Worldwide Long Term Global Growth Fund, Class B USD Acc, on average in an accounting year, of not less than 80% of fund’s NAV. The master fund has the policy to invest in global equity which are stocks with strong growth potential.
- KFHASIA invests in the master fund named, Baillie Gifford Pacific Fund, Class B Acc, on average in an accounting year, of not less than 80% of fund’s NAV. The Master Fund will invest at least 90% directly or indirectly in shares of companies in Asia (excluding Japan) and Australasia.
- KFGG and KFHASIA have risk level at 6 – high risk | Both funds will enter into a forward contract to fully hedge against the exchange rate risk, in which case, it may incur costs for risk hedging transaction and the increased costs may reduce overall return.
- Please study fund features, performance, and risk before investing. Past performance is not an indicative of future performance.
To seek more information on the funds or request for funds’ prospectus, please call Krungsri Asset Management at 0-657-5757.