Hong Kong business conglomerate Nan Fung Group’s family office, NF Trinity, has increased its allocation to non-dollar assets this year amid the reopening of Asian economies and a robust US economy.
The family office is also looking at incrementally broadening its exposure in the US stock market beyond the tech sector to financials, cyclicals, and consumer discretionary, according to Helen Zhu, NF Trinity's managing director and chief investment officer.
Zhu told AsianInvestor that NF Trinity sees opportunities in Taiwan, Korea, Japan and China equities, which can offer a decent balance between risk and reward.
While US growth has remained strong, Zhu expects the dollar to weaken against Asian currencies, which would benefit Asian stock markets, including technology shares in Taiwan and Korea, especially in the smartphone and personal computer sectors.
“If the US consumer can still hold up, and the China consumer starts to come back a little bit, there's room for demand recovery and upward revisions in those areas, which have been stalled and destocked for the past 18 months,” Zhu told AsianInvestor.
“There are also some other more traditional sectors in those markets that are export-oriented, which could benefit from a more synchronised global growth backdrop or outlook, if we can start to see a pickup in industrial or manufacturing activity after a long lull,” she said.
The family office also has had exposure to Japanese equities since the end of 2022, and these have performed quite well.
“I think the next leg is more about currency normalisation, for dollar investors to get some appreciation in yen, rather than necessarily tremendous further upward revisions to GDP, earnings or anything like that,” Zhu said.
The Japanese yen has been steadily weakening against the US dollar since the Bank of Japan loosened yield curve controls in late July. On Monday, the yen fell past the 145 mark against the dollar to reach its weakest level since November 2022.
“Japan still has a little bit of a lag coming from the reopening. If you look at tourism and some of these service sectors, recovery is only partial thus far,” Zhu said.
BROADENING US EXPOSURE
NF Trinity’s assets are US dollar-dominated, which makes investing in non-US assets more appealing if the US economy remains robust with a weakening dollar in the late stage of the rate hike cycle.
The family office doesn’t have a lot of exposure to US risk assets. But it is still looking at broadening exposure in the US stock market if the economy stays resilient.
“In the US, I think the market breadth has been very narrow in the first half of the year. A lot of the performance has really just come from some AI and FANG+ names. Any further market rally would require a broadening of the breadth,” said Zhu.
FANG+ refers to shares of American technology giants such as Meta, Amazon, Google and Apple. The NYSE FANG+ Index was up 72.3% year-to-date.
“Coming off the concern about the financials after SVB (Silicon Valley Bank), some financials might be a bit more interesting now,” she said. “Some of the larger banks, if the yield curve starts to normalise, will have better NIM (net interest margin) and earnings outlook.”
“We also see that some select cyclicals and maybe the consumer discretionary, could have better risk/reward if the US economy remains robust, albeit there may not be much room for a tremendous further upside surprise.”
She noted that some discretionary names in the US have been under pressure over the past year due to consumer buying power being eroded by inflation.
“But now, since their wages and income are still growing OK, but inflation is starting to come down, we see some benefits from that on consumer confidence, and benefits from having already de-stocked meaningfully,” Zhu said.
“So incrementally we've been looking at broadening our exposure in the US market to some of those catch-up plays.”
Nonetheless, Zhu stressed that the outlook for both US and Asian equities is based on the positive expectation of growth in the US.
She warned that any significant data disappointment would pose risks to risk assets given how strongly the market has performed.
“If such scenarios emerge, then probably longer duration Treasuries and cash are the places to hide,” Zhu said.