Future winners ripe for the pickingMoney Glitz | Gary Poon 12 Nov 2018
The market is expected to experience some upside in the short-term following the split Congress at the United States midterm elections. The political situation may force US President Donald Trump to soften his aggressive trade strategy against China.
Meanwhile, Trump is expected to meet with President Xi Jinping at the G20 summit in Argentina on November 30. Investors are hoping that the tense atmosphere and situation could be relieved.
But there are other factors, too. There is still no deal in sight on Brexit, while the yuan may further depreciate as the economy slows.
"None of us has a crystal ball. We don't know when the index goes up and when investors will buy. What we know is that we are in a late cycle now," Pictet Asset Management senior client portfolio manager Marie-Laure Schaufelberger says.
She reckons that the Sino-US trade war will only have a short-term impact on certain companies and that it would not have an impact on the long-term trends.
She says volatility in the market over these few months was due to indiscriminate selling, especially since the beginning of October.
The Dow Jones Industrial Average and the Hang Seng Index were down by 5.9 percent and 10.11 percent respectively in October.
She blames managers of exchange-traded funds for the indiscriminate selling and the volatility.
"It seems that they know the price of everything and the value of nothing," she says.
Schaufelberger emphasizes that Pictet focuses on valuation and fundamental analysis.
She believes now is the time to buy good quality stocks and increase allocation to different types of stocks.
Schaufelberger also suggests investors adopting a "thematic investing" strategy, that means identifying megatrends that change the world and selecting winners for the long-term.
"We don't know what is going to happen in the market tomorrow. We don't know what will happen one week from now. But we know that there is an aging global population. We know that there is fast-paced urbanization globally in the emerging world. We can track it," she says.
Schaufelberger and her colleagues invested in a lot of digital payment companies, such as Visa, Worldpay, Mastercard, and DBS Group. These companies are expected to benefit from the smart city concept and urbanization.
The team believes that cash is expensive to hold as people have to secure it.
"Some hotels have gone cashless. They don't take cash anymore for safety reasons for their employees because of stealing and criminals."
She explains that both Visa and Mastercard are now focusing on digital payments, while DBS Group does a lot of financing of projects in Singapore, which is one of the smartest technology cities globally.
The bank also provides loans to Southeast Asian companies that focus on developing city technology.
Global digital payments transactions reached HK$22.69 trillion in 2017 and are expected to reach HK$50.83 trillion by 2023, a report by Mordor Intelligence says.
Besides, Schaufelberger also invests in the environmental industry considering the demand for pollution reducing and air-cleaning facilities in the future.
She notes that the New York City government partnered with private companies to install about 100 sensors at traffic lights, for tracking traffic signals to help cut pollution by reducing traffic jams and stoppage time of cars.
Meanwhile, the government has fixed sensors in about 100 locations across cities to identify areas with the highest pollution levels and where changes can be made to improve air quality.
"The government will give the direction but then you need to have private players in place to be able to deliver the technology and the solution."
Schaufelberger says Pictet also has exposure to China's elevator industry as 30 percent of elevators will be installed in China's skyscrapers in the future and more people will move to the city.
Separately, Pictet Asset Management launched the Smart City Fund out of the ashes of its High Dividend Selection Fund this year.
One of the features of the Smart City Fund is "pure theme," which means that at least 50 percent of their invested companies' revenue should be exposed to the theme they are looking at.
The purity aspect is aimed at reducing the chance that holdings in the Smart City Fund will overlap with other Pictet's themed funds and with the MSCI World Index, she says.