Asian Equities: Forecasting Brighter Skies

Given expectations for a recovery in markets that did poorly last year, and with the ongoing support of structural growth themes across the region, we are constructive on Asian equities going forward. In particular, we expect growth rates to gravitate toward their long-term trend and potentially even outpace developed markets. In addition, recovering economic conditions in Europe and the U.S. should also lead to marginal improvement in developed market demand, while the likely pivot away from monetary tightening policies by major central banks—even if arriving later than expected—alongside a likely weaker U.S. dollar should be supportive of global liquidity and Asian corporate earnings.

A Broad Set of Opportunities 

In China, fiscal stimulus so far has continued to disappoint market expectations, but we have likely seen the worst of the government’s reluctance to spend. The roll out of China’s consumer “trade-in” programs aimed at encouraging consumption, equipment upgrade to improve efficiency, as well as a resilient external environment supporting export manufacturers combined with a more dovish liquidity environment, could be positive catalysts this year. At the same time, the drag from the real estate sector on equity markets is likely to diminish compared to last year.

India’s economy has proven to be resilient—and it is expected to see robust structural growth in the next few years. Its stock market has held up well, largely owing to strong buying from domestic investors, while the likely re-election of the ruling party should ensure policy continuity. In addition, the potential for consolidation among a number of strong performing companies could present potential investment opportunities.

In Korea and Taiwan, the structural growth of artificial intelligence (AI) and AI-related businesses will likely benefit many companies. Recently, we have taken profits in select Taiwanese companies, exercising valuation discipline. On the other hand, following Japan’s footsteps, Korean regulators recently implemented a “value-up” program that will support companies' voluntary efforts to return more capital to shareholders and improve governance. The move aims to encourage investment, improve shareholder returns, and support positive valuation re-rating.

Due to the removal of hurdles to earnings growth, we maintain our positive conviction in Indonesia and the Philippines. The early conclusion of Indonesia’s election should bring policy continuity and resumed business activities. In addition, its strong domestic demand and prudent fiscal and monetary policies are positive for Indonesia’s long-term structural growth. For the Philippines, moderating inflation should support earnings growth. In Singapore and Malaysia, we have identified several beneficiaries of the global technology cycle, especially in hardware technology. Thailand’s underperformance since 2023 was primarily due to policy uncertainty and the delayed return of tourists from China. These factors should likely improve in the coming months, alongside the return of fiscal support.

Our Approach

Given the breadth of the Asian opportunity set, it is important to take a bottom-up, disciplined approach to stock selection. We continue to see value in Asian companies with exposure to major secular growth themes such as technological ubiquity (digitalization and the connectivity of everything), evolving lifestyle and societal values (including sustainability, millennial/Gen Z consumption trends, and healthy living) and de-globalization (supply chain diversification/bifurcation and reshoring). While style rotations have caused volatility across markets, we believe our growth-at-a-reasonable-price (GARP) investment approach has positioned our portfolios favorably for the longer term.

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