Trends Watch: Pan Asia Investing
June 01, 2021
By Elana Margulies-Snyderman
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Tim Campbell, Managing Director, Longlead Capital Partners.
What is your outlook for investing in Pan Asia?
We have been constructive on Asia since Q3 2020 and have been seeing a cyclical recovery after the exogenous shock from COVID-19 and lockdowns, due to the following reasons:
- In aggregate, better results in containing the virus versus other parts of the world. Asia was initially first to be affected from COVID-19 and has also to date been first to recover. In 2020, the standout countries containing the virus were Taiwan and Singapore.
- Extremely large fiscal and monetary packages deployed by governments around the region and that is still filtering through the various Asian economies.
- The U.S. trade war with China forced Asian businesses over a two-year period to increase the focus on winning locally in Asia and extracting significant costs out of their businesses. Whilst this was an extremely difficult period for a lot of Asian businesses, the silver lining is that they are now better prepared for any economic recovery. What we would highlight now is the Asian winners are even more visible and very focused on winning in Asia. Asia as we all know represents the fastest GDP growth rates globally, so these are the right economies to be focused on longer-term.
What are the greatest opportunities you see and why?
As a fundamental long/short equity investor in Pan Asia, the region has historically shown the greatest level of stock price dispersion versus other key global regions. Hence, this provides a fantastic backdrop for stock pickers to find both long and short opportunities in the following areas:
- The wafer industry. This industry is cyclical and the last down cycle lasted ten years from 2007 to 2016, so a lot of investors don’t monitor a long cycle like that. In 2016 our supply chain checks confirmed an upcycle had begun and it has resulted in a very powerful period of long side alpha in one of our investments.
- The garment/apparel industry. Forces of consolidation are clear and part of this has been amplified in a post-COVID-19 world where key brands that we follow (Nike, Lululemon, Adidas, Under Armor, Target etc.) have all pushed for deeper digital engagement with their end clients. The more successful they are at doing this, the more market share they are winning. What is critical to them in their choice of manufacturing partners, is the ability to deliver the highest quality product in the shortest lead-time.
What are the greatest challenges you face and why?
Sometimes our process means that we are ‘early.’ We think that also provides the cleanest alpha where positions are not crowded. However, we spend a lot of time mapping out catalysts like earnings surprise and other events like index inclusions, initiations, etc. that will provide discovery for investors on what Longlead has spotted fundamentally. The risk with a forward-looking process is exactly that – i.e., we are early and it might take one or two catalysts before investors react. So we size into positions carefully in order to minimize the risk of this.
What keeps you up at night?
The number one thing everyday is that the research process across our team can operate effectively when conditions are good and also when conditions for the strategy might be a bit more challenging. As a result, we have developed proprietary risk management tools (tail risk hedging) that have historically helped the fund buffer periods of excess volatility. Things we worry about today are new COVID-19 strains and whether COVID-19 vaccines will be effective against them. Whilst the world is better prepared to cope with further lockdowns, it would still represent a hiccup to the global recovery; India right now unfortunately being a good example of this.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.