EPS growth opportunities in ASEAN, Mainland China and India are higher than many other economies, as can be seen from the below graph, and hence we maintain our full overweight on Asian equities.
ASEAN economies offer a balanced regional mix to navigate global macro uncertainty, with Indonesia more driven by domestic demand and Singapore more externally oriented. Inflation is moving towards central banks’ targets, implying that we may see less restrictive monetary policies. We see opportunities in consumption leaders that can benefit from an expansion of the middle class, banks that can ride on the ASEAN growth story, as well as the infrastructure sector. Allocation of India in a global portfolio can help increase diversification as Indian equities have a lower correlation to DM than other EM markets, due to its larger domestic economy which is closely linked to its strong structural growth opportunities. In Indonesia, economic retail sales and consumer credit is picking up. The government has also restored fiscal discipline. Supply-side reforms have kept the volatile food inflation in check while also benefitting from strong capital inflows, especially foreign inflows witnessing substantial growth.
Our strategy is to take more broad-based exposure to Asia by highlighting the three biggest domestic markets (Mainland China, India and Indonesia) as our three key overweight positions. Hong Kong should also benefit from increased regional growth, and our upgrade of South Korea from a mild underweight to neutral further broadens our Asian exposure.