A $172bn pension manager puts Asia at heart of GEM equity strategy
Asia is one of the most geographically important regions in British Columbia Investment Management Corporation’s, also known as BCI, global emerging markets (GEM) portfolio, a senior executive said.
“Asian countries combined currently account for approximately 73% of the global emerging markets active internal equity portfolio,” said Caglar Somek, director, global emerging markets – public markets at BCI.
“We expect Asia to be one of the leaders of economic growth in emerging markets driven by factors like favourable demographics (ex-China), rising middle class, increasing productivity, attractive foreign investment opportunities, and technological advancements," Somek told AsianInvestor.
Examples of significant country allocations within EM public equities include India, South Korea, and Taiwan, Somek added.
The Canadian asset owner manages investments on behalf of British Columbia’s public sector. It manages public sector pension plans, insurance funds and special purpose funds for the British Columbia government.
It had C$233 billion ($172 billion) in gross assets under management at the end of March 2023.
FOCUSED ON QUALITY
About 59% of BCI's portfolio is in public market assets, which includes fixed income, equities and other strategies.
The money manager’s internally managed programme for public equities includes actively managed portfolios as well as cost-effective indexing strategies designed to track the performance of diversified equity indexes.
It also uses external managers where appropriate, and the overall focus for public equities remains on investing directly in high-quality companies.
“BCI’s global emerging markets public equities portfolio and our in-house, actively managed strategy are strategically allocated and diversified across various regions,” Somek added.
India is one of BCI’s top Asia market exposures in the EM public equities portfolio.
Somek said the South Asian nation’s competitive advantage is scale.
BACKING INDIA GROWTH
“Not only is the country growing faster than most emerging markets, but India has surpassed China for the world’s largest population and was named the fifth largest economy by GDP globally, overtaking the United Kingdom,” Somek said.
Other Canadian pension funds such as Canada Pension Plan Investment Board, and CDPQ have also said India is a key element of their Asia investment strategy, covering both public and private markets.
BCI also believes with increasing foreign and local investments, middle-class consumption, and productivity, India is well positioned to continue throwing up opportunities that match its clients’ long-term risk and return requirements.
“We expect secular growth driven by demographics, dividends, urbanization, and an increasing focus on manufacturing. Beyond its large and growing consumer base, we see an opportunity over the long term for India to become a key part of the global supply chain,” Somek said.
Other experts agree: India has become an investor favourite in 2023, according to DWS Global Chief Investment Office Björn Jesch in a research note released on March 14.
While the market is challenging, investors are paying a premium of over 70% compared to valuations of other regional stock markets.
“But those who have stayed away from the market have missed out on a 160% gain in the stock market (the benchmark Sense, in US dollar terms) over the past 10 years,” Jesch said. “We believe the country – across various asset classes – continues to offer potential.”
Jesch also believes India will attract further foreign investor inflows. “And it is no bad thing that the Indian market has a below-average correlation with developed ones,” he added.
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ASIA APPEAL
More broadly, BCI is optimistic about Asia’s prospects, especially as it accounts for a significant proportion of its global emerging markets internal active portfolio.
“The growth trajectory of many Asian countries is helping them to become globally competitive economies, and we are seeing the region as a whole developing quickly on the world stage,” said Somek.
Countries such as India, Indonesia, Thailand, and Vietnam are evolving into global manufacturing hubs benefiting from friendshoring trends.
Friendshoring refers to a trade practice under which supply chain networks are focused on countries regarded as political and economic allies.
Many Asian countries boast extensive manufacturing capabilities, in some cases similar to China’s, previously called the factory of the world.
“Based on the growth drivers, we expect these and countries with similar characteristics to become an increasingly important part of our investable universe over the coming years,” said Somek.
The internally managed global EM equities strategy was launched in 2022.
Somek said the performance of the internally managed global EM strategy, launched in 2022, has been positive. “We have been pleased with the performance against the benchmark driven by our active approach and have designed the fund to deliver over the long term.”
He did not provide more details on the performance.