Szu Fuei Chong: Opportunities in Asia

For investors seeking growth and diversification, Asian markets can present compelling opportunities. And, while China has long been the focal point for investment in the region, evolving dynamics are creating interesting opportunities elsewhere.

The evolving landscape of Asia's markets

In the 1980s, the Philippines represented a significant share of the MSCI Asia Index. However, its prominence waned as South Korea, Taiwan, Hong Kong and Singapore rose to prominence in the 1990s. Then, in the early 2000s, China emerged as a leading player on both regional and global stages.

Today, we are seeing another transition, as China undergoes an economic slowdown. Meanwhile, Indonesia is experiencing robust GDP growth, driven by strong consumer demand and business investment; Malaysia is rapidly becoming one of the world’s fastest-growing data centre hubs; and South Korea and Taiwan are attracting substantial investor interest because of their leading positions in the technology world. It is worth highlighting that India and Taiwan now account for around 40% of the MSCI Asia ex-Japan Index, surpassing China's 38%.

India's domestic-driven market is bolstered by extensive infrastructure spending that has helped reduce its sensitivity to global economic fluctuations.

The nation’s demographic advantage – a growing population and an increasing workforce – is fuelling growth across various sectors including retail, property and infrastructure. This structural stability is complemented by a significant shift in currency dynamics, with the Indian rupee transformed from one of Asia’s most volatile currencies into one of its most stable. This stability can largely be attributed to effective management by the Reserve Bank of India (RBI), increasing foreign direct investment and growing exports.

Historically challenged by high inflation rates and currency volatility, India has made remarkable strides in stabilising its economy. Strategic interventions by the RBI have helped smooth out fluctuations in the rupee's value, making Indian assets more attractive to global investors.

While we believe the investment case for India is robust, we take the view that China's current economic landscape requires careful navigation by investors. The country is grappling with local government debt issues exacerbated by a slowdown in economic activity. Analysts believe robust fiscal measures will be essential to revitalise China’s economy.

In addition, Beijing’s willingness to absorb local government debt will be crucial to alleviate financial pressures on municipalities struggling with revenue shortfalls. Many local governments are on the brink of defaulting on their debt, making it imperative for Beijing to step in and provide support.

However, it is worth noting that despite these challenges, valuations on Chinese companies remain appealing for investors looking for bargains in a recovering market. That said, our view is that clarity on fiscal strategy will be essential before we make any significant additional commitments.

Diversification and growth potential

Asia's diverse investment landscape offers a wide range of opportunities. With strong fundamentals supporting India's growth narrative and markets like Indonesia and Malaysia gaining traction, investors have ample reasons to explore these regions for diversification and growth potential. We believe Asian markets, particularly India, can provide valuable opportunities in an increasingly interconnected global economy.

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For professional clients only. This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.