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  • 3 share ideas that could offer an alternative way to invest in Asia

    We share three share ideas that offer an alternative way to invest in Asia.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    You might think that to benefit from Asian markets, you need to invest in Asia-focussed funds, or companies listed in the region. But it’s not the only way.

    A lot of well-known companies rely heavily on Asian business, either now or as a growth opportunity, which means their fortunes are partially tied to the economies of Asia. The difference is they also have income streams from other areas around the globe, which helps smooth ups and downs. When one region suffers another should, in theory, pick up the slack.

    This article is not personal advice, if you’re unsure whether an investment is right for you, seek advice. All investments and any income they produce can fall as well as rise in value so you could make a loss. Past performance is not a guide to the future. Ratios shouldn’t be looked at in isolation, it’s important to consider the bigger picture.

    Investing in individual companies isn’t right for everyone – it’s higher risk as your investment is dependent on the fate of that company. If a company fails, you risk losing your whole investment. You should make sure you understand the companies you’re investing in, their specific risks, and make sure any shares you own are held as part of a diversified portfolio.

    Apple

    Apple doesn’t need too much introduction. You’ll be familiar with what they do.

    But what you might not know is Asian markets make up just under a third of the group’s $83.4bn quarterly net sales. Specifically, Apple has three Asian reporting segments: Greater China, Japan, and Rest of Asia Pacific.

    And this isn’t just because of sales. Apple’s supply chains are also Asia-focussed. Meaning when things are running smoothly overseas, so too can home operations.

    But more important is the growth opportunity – as Asian populations become wealthier, it should translate into a growing number of customers and sales.

    And growing hardware sales is very important for Apple’s wider strategy. Keeping the upgrade cycle going – making sure customers feel like they need the latest model of iPhone – is crucial for the burgeoning Services business. This includes things like the app store and Apple music. This area of the business has been growing steadily, and is much more profitable. Adding a customer to iCloud costs next to nothing, compared to the costs of making a laptop.

    But while more profitable, it’s still a smaller part of the business, and changing that depends on pumping up traditional hardware sales.

    Exposure to growing Asian markets could help, but so does an annual Research & Development budget of $22.0bn. Pockets that deep help make sure this infamous brand is never far from consumer’s minds.

    Apple has a price to earnings ratio of 29.4, which doesn’t currently seem too demanding. A big risk for now is the threat of ongoing uncertainty, and the potential for supply chain and store disruption in the short to medium term.

    View the latest Apple share price

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    Starbucks

    You don’t need us to tell you this coffee giant has a global presence. It’s the largest coffee chain in the world, with 16,637 company operated Starbucks’ across the world. Over 37%, or, 6,178, of these are in China and Japan.

    The group is actively expanding the store estate. Including higher growth markets like China, which currently has around half the number of sites as the more saturated US market. We see this as a real growth opportunity, especially because Starbucks demand goes hand-in-hand with a growing number of commercial centres, educational facilities, and retail locations. All of which we’d hopefully expect to see more of as China grows and develops at pace.

    But for now, the main event is still developed markets. And things are going better here than we’d feared. Starbucks is very much an on-the-go item, so the slowdown in travel and work commutes means revenues were hit hard in the pandemic. Sales fell 14% in 2020, while operating margins more than halved.

    Starbucks has been able to stomach the disruption well. It’s been upgrading a lot of its store formats to increase things like delivery options, click & collect and Drive-Thrus. There’s currently a prospective yield of 1.9%, which isn’t excessive, but is a lot better than nothing. The dividend looks well supported currently, especially as free cash flow is already back to pre-pandemic levels. Remember though, yields are variable and are not a reliable indicator of future income and no dividend is ever guaranteed.

    The other factor that’s helped the group survive is its brand. The infamous green and white logo is one of the best known on the planet. So even if casual coffee sales did dip in the pandemic, those that still wanted a caffeine hit were going to be drawn to their favourite brand. The sales decline of 14% during the pandemic could’ve been a lot worse, but thanks to the group’s loyal customers, it was able to increase bill sizes which helped offset losses. This has helped make for more reliable revenue streams.

    The market is excited by Starbucks, with the price to earnings ratio of 30.1 a little frothier than the ten-year average. Opportunities in Asia undoubtedly make up some of that excitement, which we happen to agree with, but it does increase the risk of short-term ups and downs and there are no guarantees.

    View the latest Starbucks share price

    Unilever

    The majority of Unilever’s €50.7bn annual turnover comes from North and Latin America, and Europe. That means there’s room for growth elsewhere, including Asia.

    Unilever is responsible for countless household staples around the globe, with leading brands like Domestos, Ben & Jerry’s, Dove and Hellmann’s to name just a small few. That means an enormous proportion of the world’s population uses a Unilever product every day.

    It already has a decent brand and revenue presence in Asia, but the group is actively pursuing growth in the region – along with the US and India.

    The great thing with Unilever is that its scale and very varied product portfolio means some level of revenue and profit generation is all but guaranteed. Pandemic or no pandemic, people still need soap.

    The tricky part for the group is keeping ahead of growing, own-brand competitors, who have more of a head start when it comes to nimble digital marketing. Traditionally, Unilever and its peers are more reliant on above-the-line advertising like billboards and TV ads. That’s made market share harder to keep hold of.

    Tackling the competition means streamlining the group’s sprawling business model – including getting rid of the tea business for €4.5bn. Should the deal complete as expected in the coming months, some of that windfall could come back to shareholders. This is far from guaranteed though. Unilever’s current prospective yield is 3.7%. This is not a reliable indicator of future income.

    We support this plan. There’s typically been a lot to be said for stability over spectacular when investing for the long term, and that’s what Unilever has a better chance of offering.

    We took a closer look at this when we shared our 7 New Year’s resolutions to help make you a better investor

    View the latest Unilever share price

    Register for updates on Unilever

    Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

    This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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