UOB Asset Management (UOBAM) maintains a positive outlook on Asia's equity markets in its 3Q2024 quarterly investment strategy report, observing that previous forecasts are materialising and growth expectations for 2024 remain on-track.
They authors note that Asian equities are turning the corner after a rocky start this year, following volatility in Chinese equities as concerns over the property sector continued to weigh on the equity markets.
“We think the case for both Asian equities and fixed income continues to improve and these assets should see further gains over the rest of the year,” they add.
The firm highlights the strength in global exports, driven largely by artificial intelligence (AI) related demand, as a significant factor supporting the region. This export strength is anticipated to help mitigate any downside pressures resulting from higher real rates.
In North Asia, UOBAM has shifted its long-term “underweight” position on China to “overweight”, citing China’s firming growth outlook as the reason for doing so. Gross domestic product (GDP) growth has remained resilient amid the domestic economy rebalancing, and the risk to reward proposition has turned favourable.
UOBAM sees potential market gains in China from corporate earnings delivery, compelling valuations, and increasingly aggressive policy support.
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Conversely, across the Taiwan Strait, UOBAM has reduced its “overweight” call on Taiwan to “neutral”, as the market appears to have priced in positives. Particularly, the country’s tech rally seems vulnerable to faltering earnings momentum.
Meanwhile, the firm continues to hold “underweight” positions on both Hong Kong and South Korea. In Hong Kong, as at the present, the real estate market has not bottomed out yet, and waning private consumption is likely to weigh on economic recovery.
In South Korea, market performance lacks breadth and the country’s 'corporate value-up' reform programme — an initiative to support Korean companies' voluntary disclosure of their corporate value plans with tax incentives and benefits — will take time to show results.
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In South Asia, India remains a stronghold in UOBAM’s portfolio, offering the best structural growth play in the Asia region. The firm anticipates continued fiscal spending and a moderate increase in welfare schemes under the prime minister Narendra Modi-led coalition government, reinforcing India's position as a preferred market.
Within Asean, UOBAM prefers Malaysia as a relatively defensive and low-beta market. A gradual rollout of subsidy rationalisation suggests manageable inflation levels in the nation.
In contrast, UOBAM has downgraded Indonesia from “neutral” to “underweight”, due to worsening negative earnings revisions. The firm has also maintained “underweight” positions on Singapore, Thailand and the Philippines.
Singapore’s near-term upside potential is likely capped due to its equity market outperformance year-to-date (ytd). Meanwhile, in Thailand, weak private consumption and uncertainty surrounding fiscal measures, particularly the country’s digital wallet scheme — a programme that offers THB10,000 ($370) in digital currency for Thais above the age of 16 years, with a yearly income of less than THB840,000 and bank deposits lower than THB500,000 — presents risks.
Similarly, the corporate earnings outlook in the Philippines carries a risk of further downgrades due to elevated inflation and slowing private consumption.
UOBAM has kept its“neutral” call on Vietnam, expecting earnings to rebound through infrastructure investments, foreign direct investment (FDI), and a recovery in exports.
On sectors, the firm is slightly bullish on cyclical sectors such as industrials, consumer and energy, while remaining selective on the financials and technology sectors. The firm also retains “underweight” positions on healthcare, communications services, and materials.
Despite the cautiously optimistic outlook, key risks identified by UOBAM that could impact this positive trend include potential downside surprises in China’s macroeconomic data and worsening geopolitical tensions, particularly between the US and China, and China and Taiwan.
