Public Equities

Asian Equities: A Positive Outlook

May 2021 – 3 min read
The outlook for Asian equities remains positive, supported by an improving global economic backdrop and structural growth tailwinds.

Asian equities started the year on a strong note amid expectations that 2021 may herald a return to ‘normalcy’ from a social and economic perspective. And while inflationary concerns driven by stronger U.S. growth expectations have led to some recent selling—namely across growth and technology stocks—we believe Asian equities remain well-supported going forward, particularly given the secular growth trends shaping the investment landscape.
 

Risks & Opportunities

In our view, it is encouraging that Asian markets ended the first quarter of the year in the green, in particular after such robust performance last year. Even more impressive was the fact that this occurred against a backdrop of several identifiable risks playing out—including inflationary pressures, a sharp spike in bond yields, fears of tapering from the Federal Reserve (Fed), COVID resurgence, regulatory scrutiny, supply chain disruptions, tightening conditions for Chinese tech companies and stylistic rotations out of last year’s winners. 

Going forward, we believe the economic indicators for Asia look favorable. The U.S. economy is expected to lead the global economic recovery in the coming two quarters, thanks to massive fiscal stimulus packages still being rolled out, while the Fed maintains, and continues to guide, a patient stance. Meanwhile, China is fine tuning its economic growth recovery toward a more high-quality sustainable pace. This sets a positive outlook for key Asian exporters such as Taiwan and South Korea. As vaccinations gather pace across Asia later this year, the economic recovery will likely gather momentum—in particular in large domestic-oriented economy like Indonesia, which benefits from structural growth tailwinds. 

Earnings season for the year has also commenced on a robust footing with corporates feeling optimistic, despite ongoing challenges like supply chain disruptions. At the same time, it is becoming clear that a new capital expenditure cycle is taking off, particularly in tech, but also across other industries, driven by the strong demand recovery and the faster than anticipated adoption of many secular growth products and services. Indeed, leading indicators of capital expenditure—such as capital imports from Korea and Taiwan—suggest that this is beginning. In this context, and supported by an accelerating earnings outlook, relatively attractive valuations, and still under-owned by global investors, we believe Asian equities look attractive.
 

A Structural Transformation

Despite decades of superior economic growth, Asia remains very much a region undergoing a multi-year structural transformation. For instance, ASEAN may be behind China and the rest of world in terms of the internet economy—with stock markets lacking in technology representation—but this is rapidly changing. SEA Limited, ASEAN’s largest tech company, could soon be joined by fellow internet giant Grab, which will change the mix and composition of ASEAN markets. And we are seeing a similar trend in India. 

At the same time, China, which is already leading certain green technologies such as the solar industry, has set its goal toward reaching carbon neutrality by 2060. However, given the scale of China’s emissions, newer technologies will likely be required in order to reach the target—and we expect to see opportunities in many compelling companies which rise to the challenge of helping China meet this goal. In terms of supply chain bifurcation, China needs to develop its own technological supply—and we believe this will again create attractive opportunities in companies with exposure to this structural theme. India likewise is not sitting still. Learning from China’s experience, and seizing the current opportunity of supply chain diversification, India is attracting multinational companies with tax incentives and access to its huge consumer base. As a result, India is gaining investments, which could add to the growth engine in years to come.
 

Uncovering Opportunities

As we look across the markets today, we see particular value in companies exposed to secular growth themes such as technological ubiquity (the digitalization and connectivity of everything), evolving lifestyle and societal values (sustainability, millennial/Gen Z consumption trends, wellness economy) and de-globalization (supply chain diversification/bifurcation and reshoring). The recent share price corrections in some companies with exposure to these themes have resulted in more attractive valuations, at times creating opportunities to purchase well-positioned companies at attractive prices.  

At Barings, we aim to exploit these opportunities through a disciplined and consistent investment process, with the overall goal of delivering superior, long-term, risk-adjusted returns for our clients. Our approach is anchored in our Growth at a Reasonable Price (GARP) investment philosophy and commitment to fundamental analysis and bottom-up company research, as well as in our belief that long-term earnings growth is the principal driver of stock market performance.

SooHai Lim, CFA

Head of Asia ex-China Equities

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.