What’s Supporting Asian Equities?

Today’s macroeconomic backdrop sets the stage for a more constructive outlook on Asian equities in the coming months. For instance, with the U.S. Federal Reserve finally cutting rates in September, and European Central Bank already on the path, Asian central banks should be able to adjust their monetary policies based on domestic conditions—and the gradual decline in real rates should be conducive to support broader equity markets. Economic growth rates could also potentially gravitate toward their long-term trends, with Asian economies expected to outpace developed markets.

Opportunities Across the Regions

Looking across the market, we see potential opportunities emerging across the regions. In China, the announcement of a series of concerted policy stimulus has been long awaited. The direct reduction to existing mortgage rates, asset swaps by the People’s Bank of China (PBoC) with financial institutions, and major fiscal policy packages show that the government is keen to focus on the more challenged areas of the economy. While these measures will likely take some time to reflect into fundamentals, we believe in the medium term a number of companies, which have a strong competitive advantage, could potentially see a re-rating.

We maintain our positive outlook for India given its structural growth profile. India’s focus on domestic economic development reduces its vulnerability from fluctuations in geopolitical sentiment, which is a tail risk heading into the U.S. elections. Despite the overall less attractive valuations in Indian equities, we continue to identify select  opportunities in companies with strong earnings growth, but trading at reasonable valuations.

Although many investors trimmed their exposure to the AI-driven hardware sector alongside the market’s adjustment to near-term supply and demand, the long-term structural demand for this theme will likely support key Asian supply chain beneficiaries—particularly in Korea and Taiwan. This trend should continue to drive corporate earnings due to limited supply capacity in the near term, and companies with a competitive edge are expected to increase prices. Given the healthy long-term case, we would look to increase our exposure to this sector when valuations are attractive.

Across ASEAN, macroeconomic tailwinds are presenting strong domestic structural opportunities, especially in Indonesia and Philippines. In these countries, we believe local businesses would benefit from easing real interest rates. In Thailand, the political overhang has been largely removed, and we are expecting consumption recovery in the coming months as the first batch of government handouts begin.

Our Approach

Given the variety of the opportunity set across this region, it is important to take a bottom-up, disciplined approach to stock selection. In our view, Asian companies that have exposure to secular growth themes such as 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) continue to offer value. While style rotations have caused some volatility across markets, we believe our Growth-at-a-Reasonable-Price (GARP) investment approach has positioned our portfolios favorably for the long term.

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