Competitive reinvention in terms of investments is now driving profound change in Asia, according to a Morgan Stanley report.
This comes in response to various global themes mapped out in the report, Thematic Investing: A Framework for Uncovering Alpha, as Morgan Stanley warns that global investors may not fully appreciate the transformative change in Asia, which is well underway, but far from complete.
The thematic investing in Asia is believed to be requiring detailed and collaborative analysis, alongside assessments of capital/capacity mobilisation and subsequent competitive intensity.
Morgan Stanley says conceptual frameworks such as Expectations Investing and the Capital Cycle are highly applicable over the medium term. However, the high and rising role of retail, market-neutral and systematic investors in key markets also means that sentiment factors are crucial for timing.
Further, they launched a thematic focus list for Asia Pacific, aimed at identifying the highest-conviction thematic opportunities in
the region, incorporating valuations, fundamentals, positioning and quantitative factors at both the sub-theme and stock level, alongside analyst ratings, forecasts and risk/reward.
Asia Thematic Focus List – The Investment Process
- Composition: Fixed 25 constituents, diversified across themes
- Performance attribution: Drift-weights, rebalanced to equal-weight at COB on date of constituent changes
- Investment horizon: Target investment horizon of 9-18 months on average (annual turnover 67-133%), but flexibility to adjust according to changes in valuation and relative opportunity sets
- Investment style: Individual inclusions will be style-agnostic, but they expect an overall GARP factor exposure over time
- List management: Managed by the Asia Pacific Equity Strategy, Thematic & Sustainability research teams, with input from industry analysts and market strategists
- Investible Universe: Asia Pacific stocks under MS coverage
- Benchmark: MSCI AC Asia Pacific
- Investment Constraints: Only overweight-rated stocks eligible for new inclusion. Stocks subsequently rated at equal-weight may be retained, but those downgraded to underweight to be removed at the next review.
In terms of AI, Morgan Stanley notes that countries look to build more independence into their own ecosystems. They say that companies are also racing to diffuse AI (both digital and embodied) into their own R&D programs and operational processes, making Techno-Competition both proactive and defensive.
