Asia Insights
Key Highlights:
- Economic transformation and demographic advantages are propelling India’s ascent and equity market outperformance, but investors remain under-allocated
- Well-publicised challenges and uncertainty about China’s economy led to what may have been peak negativity in the country’s equity market. Even after this quarter’s sharp rally, Chinese shares continue to boast a large valuation discount
- Indian equities exhibit strong earnings and consistent growth, while Chinese equities trade at a significant discount relative to the rest of the world and their own history. The two markets thus present very different investment considerations
The contrasting background to Asia’s two largest markets
The economies of China and India continue to climb global rankings. Both economies face challenges and opportunities, yet the two equity markets have experienced contrasting fortunes recently and offer distinct prospects. The low correlation between the two markets also provides portfolios with useful diversification. We consider the underlying factors that investors should consider when examining each market.
Asian equities may not reflect growth prospects
While recessionary risks loom over developed markets, Asia is at a different point in its economic cycle with relatively high growth compared to its developed peers and solid macro fundamentals. The region is also benefiting from technology upgrades, particularly in artificial intelligence. In ASEAN markets, China plus one supply chain strategies and a resilient macro backdrop present opportunities. Overall, Asian equities continue to trade at or below historical averages. We outline our areas of focus and why we maintain a positive view.
Asian fixed income: diversification and carry
Asia’s fixed income market remains worthy of consideration by investors, particularly given the Federal Reserve’s ‘wait and see’ approach following a stall in inflation progress. Markets remain acutely sensitive to incoming economic data. In this environment, Asia’s investment grade bonds are poised for lower volatility than their global counterparts. We examine the economic background, the opportunities that exist in the region for carry strategies, and the diversification that Asian fixed income can add to portfolios.