Year Ahead 2025: Asian Equities
We explore what we believe could be the key drivers for Asian equities in 2025 including Trump 2.0 and where we see the most potentially attractive investment opportunities.
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Asian equities in a nutshell in 2024
2024 was another eventful year in Asian equities. Taiwan led the region for a second consecutive year, as AI related investments helped drive better earnings growth.
India started strongly but suffered setbacks including the BJP (Bharatiya Janata Party) not securing a majority, seeing a cyclical slowdown and excessive equity issuance.
Mainland China struggled with deflationary fears and a continuing property market adjustment through the first 9 months of the year before rallying significantly on joint monetary and fiscal stimulus announced in late September.
Korea lagged as its largest stock suffered significant de-rating.
ASEAN markets were mixed: Singapore and Malaysia performed strongly, driven by strong banking earnings. Other markets such as Indonesia and the Philippines struggled amid tighter monetary policy.
What do we see as the key drivers in Asia in 2025?
The key issues that we believe will likely dominate markets in 2025 are:
- Trump 2.0: tariffs and a stronger US dollar will likely impact Asia through higher for longer US rates, leading to tighter liquidity situations in current account deficit markets. Tariffs will also mean select export orientated companies will likely experience headwinds. Mainland China will be most at risk given the fractured geopolitical landscape and will likely respond with further fiscal and monetary support. How China addresses its challenging property sector, consumer confidence and deflationary pressures will be crucial to determining the outcome for earnings and market performance.
Outlook for AI capex investment: whilst AI-related revenue remains strong, many Asian technology stocks are trading at record highs with no clear visibility on how cloud service providers will monetise consumer adoption of AI. Given the enormous capital outlay on AI we believe 2025 will be the year when markets question the sustainability of heavy capex spending without sufficient returns.
India: recent earnings and macro data have shown signs of slower growth at the margin, not helped by disruptions from weather and recent elections. While we are not expecting a prolonged slowdown, the significant issuance of equity and likely deployment into the market will mean returns are likely to come down in select sectors, potentially leading to lower equity returns.
Where do we see the potentially most attractive investment opportunities?
We continue to see Asia equities as an attractive asset class for investors in 2025 and believe the above themes can be navigated through strong bottom-up stock picking in quality companies. We would particularly call out several areas that the Asian equity team like:
- Private sector banks with excellent deposit profiles and the ability to benefit from a tighter monetary policy backdrop. We’d particularly call out private Indian banks that haven’t underwritten troublesome unsecured loans, Singapore banks that benefit from world-class institutional frameworks, as well as select pan-Asia banks that have been through a long period of de-risking their balance sheets and continue to trade at cheap multiples.
- Unloved Hong Kong stocks that in select cases are world-class operators and increasingly seeing positive capital return policies, which we believe will improve their depressed valuations. Moreover, select technology stocks in Mainland China where market share has been consolidated to either monopolistic or duopolistic structures. We’d specifically call out gaming, music content and online travel.
- Yield: we believe with greater geopolitical uncertainty, the focus on capital return will be greater than ever. Dividend payout ratios are very closely linked to better corporate governance in Asia and we believe those companies which are moving to rewarding shareholders with higher payout ratios will potentially perform well in 2025.
More than ever, we think 2025 will be a year which rewards investors who are disciplined and focused on fundamentals and bottom-up stock picking. We will continue to invest in companies which have attractive long-term fundamentals and valuation upside, which we believe is the keyway to generate durable and consistent returns for investors.
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