Asian Equities: The Likely Return of Growth?

With the likely commencement of rate cuts in the coming months, which has the potential to reinvigorate the large domestic-demand Asian economies and spur higher growth relative to developed markets, we remain constructive on Asian equities.

In addition to the improving conditions in Asia, the recovering economy in Europe and the resilient labor market in the U.S. should lead to marginal improvement in demand in Asia, likely driving the manufacturing and export industries. Alongside the outlook for a weaker U.S. dollar in the second half, the likely pivot toward dovish monetary policies by major central banks could provide an opportunity for a positive re-rating in Asian equities.

Select Opportunities across the Market

In China, we are closely monitoring policy decisions flowing from the Third Plenum, especially in the area of credit and property market reforms. Chinese companies are starting with a relative subdued earnings base, and we could potentially see positive surprises this year alongside lower-than-anticipated drag from the property market. On the other hand, tariff-driven headwinds could become stronger in the coming months as we approach the U.S. election.

In India, we continue to maintain that the economy is structurally positioned for growth. However, the failure of the Bharativa Janata party to secure a majority in India’s recent election would likely dilute Prime Minister Narendra Modi’s ability to drive deep reforms and/or projects in the country despite a reasonable expectation for policy continuity. Nevertheless, we see select opportunities, particularly in high-quality companies with strong prospects for market share gains over the medium to longer term.

In Korea and Taiwan, the structural demand for artificial intelligence (AI) driven hardware could likely support relevant beneficiaries in these markets, while also benefiting some segments of the Malaysian market. This trend is likely to continue to drive corporate earnings due to limited supply capacity in the foreseeable future, and companies with a competitive edge are looking to increase prices.

Within ASEAN, we have increased our relative preference for Thai companies on the back of expectations that government spending should begin to filter through the economy in the second half of this year. Tourism, which is a significant component of the Thai economy, also continues to recover. At the same time, we are maintaining our relative preference for Indonesia and the Philippines based on their structural growth opportunities. Among other reasons, favorable demographics make these markets attractive destinations for investment, while subsequent wealth generation should support domestic consumption.

Our Approach

Given the variety of opportunities available in Asia, it is important to take a disciplined, bottom-up approach to stock selection. We continue to see value in Asian companies with exposure to the secular growth themes including technological ubiquity (the 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). While style rotations have caused volatility in recent 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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