State of the Emerging Markets: Unearthing the Hidden Gems in Asia
Aleksey Mironenko is a keen proponent of the value HNWI investors can find in China ‘A’ shares and in the key parts of Asian stock markets. In his capacity as Partner & Chief Distribution Officer for Hong Kong-based investment manager Premia, he gave a presentation at the Hubbis Investment Solutions Forum to highlight opportunities in China new economy shares, in innovative Asian companies and in the firm’s recently launched Vietnam ETF. He believes that in a world of inflated valuations and liquidity seeking new homes, ASEAN and China markets are at an exciting phase of development and offer a highly diversified range of opportunities. And to access these, HNWIs can buy into Premia’s growing stock of China and ASEAN ETF strategies.
Premia is a relatively new investment manager dedicated to Asian ETF investment solutions, arriving on the scene in Hong Kong less than three years ago. In only a few years since inception, Premia has propelled itself to the eighth largest ETF manager in Hong Kong by assets under management (AUM), from a standing start.
Mironenko told the assembled delegates that Premia’s team comes from a variety of leading firms and have always focused on Asia before they came together to build an Asian ETF company. Premia today already boasts a team of 20 with hands-on execution experience from leading firms. The firm has garnered a wide range of leadership and managerial experience from global institutions including Marsh & McLennan, BlackRock, China Asset Management, Mirae, Value Partners and other firms.
“And just shy of two years after our first ETF launch,” he reported, “we are already the 2nd highest ETF provider by inflows in Hong Kong and in the top 8 of ETF providers in Hong Kong by assets. Why? Because we build products that are relevant for Asia, relevant for investors seeking exposure to these markets, and do it all at lower-cost of entry and a more incisive selection of investments.”
Premia’s 3 core principles
Mironenko explained that Premia was founded on three core beliefs. First, there is enormous scope for innovation in Asian ETFs, and plentiful opportunities to introduce global best practices for Asia. Second, Asian investors should not have to trade in New York or London or Frankfurt to find the best products the ETF industry has to offer. And finally, Asian investors deserve better solutions than those available today and technology allows Premia to make them a reality.
“The firm’s ideology is to offer investors a vision of ‘smart investing’, aiming to create a reliable, curated ecosystem that is conducive to ETF investing, optimised with the best technologies, tools, and platform,” Mironenko reported. “This all adds up to the bold yet straightforward goal to reshape the landscape for ETFs in Asia.”
Mironenko then offered delegates some insights into how investors can turn to Premia to help them capture the growth momentum available in Asia’s EM arena. He highlighted some key Premia strategies.
“We set out on to create Premia with a vision that the ETF industry in Asia, the beta industry, is far behind the rest of the world,” Mironenko elucidated. “We all know about the low-cost S&P 500 and FTSE 100 and EURO STOXX 50 ETFs, but when you look here in Hong Kong, China, or Southeast Asia, we don’t have sectors, we don’t have factors, we don’t have themes and some of our biggest ETFs cost 1% plus. So, beta is not really an alternative in our part of the world, and we decided to create a firm to change that. It is a very simple premise. Today, we have more people dedicated to beta in Hong Kong than pretty much everybody but iShares. And we create strategies that are highly focused, highly relevant, and that offer good value for that access.”
In an over-valued world, seek value elsewhere
Mironenko pointed to some charts that highlight how the US equity market is very highly valued, how there is almost nowhere to obtain yield in fixed income without taking on substantial credit or duration risk or both, how gold has already surged significantly since 2018, and that there are fewer and fewer evident drivers to keep that momentum going much longer.
He explained that this background is ideal for Premia’s strategies in China and in Southeast Asia, including Vietnam.
In broad terms, Mironenko reported that Premia’s chosen EM markets in Asia have strong fundamentals, low valuations, are under-invested and are now benefiting from improved currency dynamics. He added that emerging ASEAN stocks are also benefiting from supply chain repositioning, while China new economy stocks are benefiting from an increasingly domestic and consumption-driven market.
“Taking China,” he said, “we know growth is slowing, but we offer structural growth stories that are not correlated, such as, for example, New Economy stocks. China knows the US exports game is over compared to the past, so the long-term story is going to be a relative decline in exports to the US. With this in mind, our Premia CSI Caixin China New Economy ETF (3173 HK) offers smart beta exposure to China ‘A’ new economy stocks, targeting precisely the part of the Chinese economy that continues to grow.”
Not only does the Premia ETF focus on new economy stocks, but its index narrows the field down to focus on quality, asset-light, low debt, high R&D and high growth potential firms.
Asia beyond China
And he then turned to the broader Asian region, highlighting the Premia Asia Innovative Technology ETF (3181/9181 HK), which offers pan-Asian coverage of a diversified group of innovation leaders. “This comprises companies that make more than 20% of their revenue from new technologies, such as 3D printing, e-payments, GPS manufacturing, optical lenses for robots and others,” Mironenko reported. “And then we narrow the field here too, focusing on growth and R&D expenditures to identify not just new technology firms, but the leading new technology firms.”
Lastly, for those thinking about growth in new markets, Premia recently launched the Premia MSCI Vietnam ETF (2804/9804 HK). Vietnam as an economy has a very large number of positives, he explained, and is also the biggest US-China trade war beneficiary. “Vietnam is one of the fastest-growing markets in the region, benefiting not only from the trade war but from increased domestic consumption by its 100 million citizens” he said. “It is an exciting choice for investors, as the country is in fact not yet an emerging market - it is classified as a frontier market and is working hard to qualify for emerging market status under MSCI.”
The country, he noted, has many key positives, including government support via privatisation to boost the equity market, faster growth than most of ASEAN and indeed, all of Asia, conducive liberalisation, and growing foreign investor interest. It also offers a 60% labour cost advantage vs China, a large and willing-to-work population and increasingly improving infrastructure for global supply chains. “Our new Vietnam ETF offers a low cost, rules-based access strategy to the fast-growing Vietnam market,” he reported.
More from Aleksey Mironenko, Premia Partners