Public Equities

Asian Equities: Progressively Constructive as Tailwinds Emerge

July 2023 – 2 min read

Macro tailwinds and normalization into a post-COVID environment are shaping a progressively improving outlook for Asian equities.

The near-term outlook for Asian equities is improving, with some of the macro headwinds facing the market in the past 18 months likely to turn into tailwinds. One key example is the expected reversal of U.S. dollar strength, which is supportive for domestic consumption in Asia. As a result, Asian performance laggards in the year’s first half could catch up in the coming months, while leaders consolidate their strength and build on the year’s rally. If the second half of the year sees central-bank tightening efforts wind down and earnings to guide higher, investor sentiment toward Asian equities should also improve.

India and Southeast Asia Lead, Eyes on Policy Support in China

China’s post-COVID recovery lost steam in the second quarter in the absence of strong supportive stimulus. With manufacturing PMI contracting for a third month, the current domestic economic weakness is likely to prompt the introduction of supportive policies in the coming months. Potential measures could include interest rate cuts, additional fiscal spending, tax incentives, property market easing, and investments in green infrastructure. Decisive support and regulatory easing, as well as possible further thawing of U.S.-China relations could help reverse the market’s current negative sentiment.

Meanwhile, India’s valuation premium has been justified by its economic and corporate resilience. Foreign investors returned as the market’s long-term structural appeal became even more compelling as an alternative to China. With India’s domestic investment cycle back in an upswing, we see particular value opportunities in Indian banks and industrials.

Looking across to the Korean and Taiwan markets, companies are likely to benefit from an expected upswing in semiconductor demand in the next 18 months. The recent pace of AI development has added conviction to Korean and Taiwanese companies with exposure to the theme. In addition, the Korean market offers other interesting bottom-up opportunities, including stocks that benefit from the global popularity of K-pop music and K-beauty.

Tourists are flowing back to Southeast Asia, driven by supportive government policies and pent-up demand from North Asia. ASEAN is also receiving a growing share of the world’s capital investments ranging from low value-added manufacturing to the hardware technology supply chain. The longer-term thesis of Southeast Asia as a beneficiary of supply chain diversification remains well intact, with Chinese companies extending their supply chains to the region.

Our Approach

Given the variety of the opportunity set, we believe it is important to take a disciplined, bottom-up approach to stock selection. We continue to see value in Asian companies with exposure to major secular growth themes: technological ubiquity (digitalization and connectivity of everything), evolving lifestyle and societal values (sustainability, millennial/Gen Z consumption trends, healthy living), and de-globalization (supply chain diversification/bifurcation and reshoring).

At Barings, while style rotations have caused some volatility across markets, our approach remains anchored in our Growth-at-a-Reasonable-Price (GARP) investment philosophy. This has positioned our portfolios favorably for the longer term.


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.

Related Viewpoints