Public Equities

Asian Equities: A Constructive Outlook, but China is a Wildcard

February 2024 – 2 min read

While a number of factors are shaping potential opportunities across Asian equities, Chinese government policies and its stock market could be a wildcard for 2024.

The Asia ex-Japan equity markets saw bifurcated performance in 2023. For instance, there was strong structural growth from Indian equities, and the bottoming out of the semiconductor cycle benefitted Korea and Taiwan companies—but China and ASEAN equities saw multiple compressions despite positive earnings growth. Looking ahead, we are constructive on Asian equities overall, as we not only believe that structural growth opportunities continue to exist, but we also expect to see some recovery in the markets that have performed poorly last year.

Opportunities Across the Region

In the U.S., moderating inflation and a strong labor market have set the stage for a likely soft-landing scenario this year. This suggests that global central banks now have the flexibility to tailor their monetary policies based on their domestic conditions, which is generally supportive for global economic growth. Against this backdrop, Asian exports could see a pickup in orders, led by inventory restocking as well as a recovery in the global tech sector. At the same time, the potential for U.S. interest rate cuts in 2024 could result in a marginally weaker U.S. dollar, which should be supportive for global liquidity.

Since its post-COVID reopening in 2023, China’s economic recovery has been weak with government policy support below market expectations. This year, we expect the focus of policies to shift from stabilization toward growth, and, as a result, there could be a rebound if investor confidence returns given the current attractive valuation of Chinese equities.

India’s economy has proven to be resilient over the past three years, compounding at around 6-7% annually.1 Structural growth on the back of India’s demographic dividend is well underway, and the likelihood of policy continuity has increased given the recent favorable results for the ruling party in the state elections. We believe there is potential for some consolidation in the strong performers, but we are also looking to add on to these opportunities.

We are constructive on the technology sector in Taiwan and Korean markets, given their dominant positions in the global semiconductor and memory supply chains. AI-related demand is shifting toward commercialization of software and hardware products, which is driving structural demand. We also see opportunities associated with the rising popularity of Korean culture, such as medical cosmetics and K-pop music.

Across Southeast Asia, we are relatively constructive on companies in Indonesia and the Philippines. Policy continuity is expected in Indonesia following the upcoming election in February (or July if a second round is needed). Strong domestic demand and prudent fiscal and monetary policies are positive for Indonesia’s long-term structural growth. While inflation was a headwind for the Philippines in 2023, moderating energy prices and global inflation should support positive earnings growth. In Singapore and Malaysia, we are positioned for the recovery of the global technology cycle. Thailand’s underperformance in 2023 was primarily due to its extended election cycle, policy uncertainty, and a delayed return of tourists from China. These factors are likely to improve in 2024, and alongside the planned cash handouts by the Thai government to stimulate domestic consumption, this could be supportive of a number of cyclical opportunities.

Our Approach

Given the variety of opportunity set, it is important that we take a disciplined, bottom-up 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 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 long term.

1. Source: IMF. As of October 2023.

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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.

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