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Top Trends and High Conviction Themes Q3 2023 - A New Chapter

05/06/2023, updated 17/06/2024
High Conviction Themes
Willem Sels

As we enter a new chapter for the world in many respects, the big changes we are going through are key considerations for all of us. By better understanding the long-term direction, investors can avoid being blown off course by short-term noise.

Our top trends and High Conviction themes are designed to help investors see the big picture, capture returns from long-term trends, but also emphasise a particular bias which we may not be able to sufficiently express in the core portfolio. As a complement to our Q3 2023 Investment Outlook - Eastwards and Upwards, it helps you to achieve the best balance between opportunity, risk and performance to the portfolio.


2023 Q3 Top Trends and High Conviction Themes


Our investment strategy for 2023 is based on four key trends, supported by diverse high conviction themes.

Remaking Asia's Future

Amid the global economic downturn, Asia stands out as a bright spot delivering resilience and growth, supported by China’s robust consumption-led recovery and resilient growth of India and ASEAN.

1. China’s Recovery Opportunities

Taking into account the most significant incremental impact from China’s reopening has already played out in the past six months, we have repositioned the old theme to China’s Recovery Opportunities, as we expect China’s cyclical upswing will expand into a broader and more balanced recovery path in H2 2023 with support of further fiscal and monetary stimulus.

2. Asia’s Rising Tigers

Looking beyond opportunities from China’s recovery, we further expand the theme on ASEAN Tigers into a broader new theme on Asia’s Rising Tigers to capture promising secular growth opportunities in India and Southeast Asia. The Indian and ASEAN economies enjoy demographic tailwinds as they have the youngest populations in Asia. 

3. Asia’s Green Transformation

Asia’s Green Transformation continues to be our High Conviction Theme with focus on opportunities from the Energy Transition and Independence, green infrastructure development and innovation of new energy vehicles technologies in the region. China’s transition towards renewable energy and electric vehicles (EV) is well underway, backed by strong policy support and catalysed by the global energy crisis.

4. Asian Quality Credit

Positioning for the peak in US rates, investment outlook for the Asian credit market becomes more constructive. We are bullish on the theme on Asian Quality Credit, as we see an opportune time to switch from time deposits into high quality credits to lock in yields at compelling levels. We add Asian financials to the opportunity set under this theme, focusing on Japanese and Korean banks and life insurers, and select banks in Australia, Hong Kong, Singapore and Thailand.

Opportunities Amid Peak Rates and Slow DM Growth

The current growth and rate dynamics do not direct us towards cash, but to quality bonds and to stocks of companies with resilient earnings potential.

1. American Resilience

In the equity market, we look for earnings resilience. In both the US and Europe, we find this in consumer-related companies as well as industrials, and we focus on global leaders as they can better protect their margins. 

2. European Champions

While it is true that the US has a much higher percentage of quality growth businesses we think that investors should not dismiss Europe entirely when it comes to searching for European Champions. We have identified companies that offer very attractive exposure to structural megatrends that will sustain robust revenue growth and profitability throughout the cycle.

3. Asia through DM

Western companies with significant exposure to Asia should benefit from the cyclical upswing there. This can be a good way to take indirect exposure, for investors who worry about policy risk in the region.

4. Durable Dividends

It is worth looking at companies with high and Durable Dividends, especially as such companies often qualify as low volatility stocks.

5. Infrastructure

Infrastructure is another area that can provide stable cash flows even as the cycle slows. The US Inflation Reduction Act, which created a USD250 billion loan programme to upgrade, repurpose or replace energy infrastructure provides key policy support to our Infrastructure theme. 

6. Defensive Positioning across DM Financial Bonds

The Developed Market (DM) Financials sector has been through a period of transformation since the global financial crisis, with a strong focus on capital adequacy. It’s an industry wide endeavour which remains in place over a decade later. 

7. Opportunities in Quality Credit 

As markets like to anticipate and could price in more rate cuts soon, we would like to lock in current bond yields, though we stay relatively safe in quality credit and the senior part of the financials’ capital spectrum.

Digital Transformation

The digital revolution is now entering a particularly interesting phase as several key technologies converge and where interoperability is becoming essential.

1. AI and Automation

Through the use and application of AI and Automation, users already benefit from more information and help to make smarter decisions that are not limited to the obvious such as the most efficient way home. 

2. Smart Mobility

The benefits of Smart Mobility to society are large and obvious. Recent advances in artificial intelligence (AI) software and semiconductors that expand the capabilities of automatons will expand their existing applications and give them new functionality.

3. Aerospace

Recent involvement of private commercial Aerospace companies has transformed the space economy. The dramatic fall in the cost and size of satellites and the cost of launching them has opened the market to new commercial activities inconceivable only a decade ago.

Investing for a Sustainable Future

Sustainability has been a rising topic for several decades now but in the last 5 years it has really begun to take shape in people’s minds as an achievable and worthy goal for the everyday. 

1. Energy Transition and Independence

The transition to lower emission energy production and greater energy independence is not just a European story, the US and Asia are also progressing quickly in these themes.The lessons learned from the global pandemic and recession suggest that energy independence is crucial in this highly competitive global economy. The development of renewable energy sources, combined with traditional inputs, creates a transition period.

2.  Investing in Biodiversity

Biodiversity though, is quickly becoming one of the areas of greatest interest when it comes to sustainability. New mechanisms to value, manage and attribute credit appropriately will create an economy around protecting and promoting biodiversity. This is a significant step towards sustainable management which presents a large opportunity for investors.

3. Social Empowerment and Well-being

Social issues such as equality, opportunity, quality of education, clean water, nutrition and sanitation are all growing in importance as society demands more of their stakeholders. The pandemic played a significant role in bringing the social element of corporate behaviours to the fore.

For investors, some companies will be better positioned than others to navigate the mounting pressures and potential risks of these issues. Governments, shareholders, employees, consumers and activists are increasingly demanding that companies integrate all social aspects in their business strategy, and those that do are likely to benefit.

4. Sourcing Income in a Sustainable Way

With tighter lending conditions and banking sector concerns not completely eased, we expect market volatility to stay and thus focus on risk mitigation by building resilient portfolios, underpinned by quality and environmental, social, governance (ESG) considerations.

Assessing ESG related opportunities and risks should position investors in companies with strong governance, robust business models and healthy earnings streams to manoeuvre these uncertain times.

Adding thematic investments can make the portfolio more relatable and aligned to your personal objectives and interests. That’s worth a lot. But it is only by combining thematic satellites with a well-diversified and well-managed core multi-asset portfolio that we think investors could achieve the best balance between opportunity, risk and performance.

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