Stay Invested, Harness the Distinctive Power of Asia

US' rate cut timeline remains uncertain, investors should stay invested
Asian assets to benefit from USD weakness expectations
Favour equities, particularly Taiwanese, South Korean tech shares
Structural growth to boost India's and Indonesia's consumer, financial and industrial stocks

The US economy is poised to stay resilient despite possible slowdowns. BEA Union Investment holds on to the view that rates are likely to remain elevated until mid-year. We maintain the view that US GDP could grow by 2.7%, with Asian macro fundamentals remaining robust. Despite the market being fraught with uncertainties, the current trajectory will favour risk assets. Hence, investors are advised to stay invested, strategically balancing allocations between equities and bonds to optimise their potentials and mitigate the risks of having the value of your assets being eroded by inflation and uninspiring growth.

Asia stands to gain from a weakening US dollar as rate cut looms and as twin deficits rise. Sectors we deem favourable include Taiwanese, South Korean and US tech shares as well as Indian and Indonesian infrastructure and industrial stocks. With China undergoing structural changes, our investment teams exercise caution towards Chinese equities in general, but will keep tabs on value stocks and hedge geopolitical risks via energy shares.

Tech sector thrives in Asia; opportunities re-emerged in South Korean and Taiwanese stocks

The tech industry is poised for massive growth potential, bolstered by both structural and cyclical trends. Our investment teams have identified opportunities within the tech sector across Japan, Taiwan, South Korea and the US, with a particular interest in Taiwan. The semiconductor recovery has commenced, with historical data suggesting growth could last six to eight quarters. Operations in ABF Substrates, raw wafers and foundry space of the later recovery cycle are in focus. With the prospect of the tech sector bottoming out, data centres, memory chips, semiconductors and artificial intelligence (AI) are set to propel the developments of personal computers and mobile phones. AI emerges as a multi-year thematic narrative, buoyed by mounting demand for AI-related semiconductors from tech giants and intensifying global competitions. Companies already leading in this space are poised for exponential growth in the coming years.

See structural growth potential in India, Indonesia; consumer, banks and industrial stocks in favour

India and Indonesia are experiencing significant structural shifts. Rising infrastructure investments by the governments, alongside a burgeoning working-age population will boost prospects for consumption and services sectors such as food and beverages, automobiles, hotels, and healthcare. Additionally, banks, personal finance, and insurance stocks are poised to fare well as a result. India's Prime Minister Narendra Modi has been stepping up its reform efforts, such as reducing corporate taxes and increasing infrastructure expenditures, which brightens the outlook for industrial and material stocks. Meanwhile, Indonesia boasts the world's largest reserve of nickel, a crucial material for EV battery production. Consequently, our investment teams maintain a positive stance towards Indonesian metals and material stocks.

It is election year for both nations. In India, Prime Minister Modi's ruling party holds a leading position, a development that has been met with enthusiasm by investors. Meanwhile, Prabowo Subianto, the current defense minister has won the presidential election, with the eldest son of president Widodo becoming the vice president. Market participants anticipate that Indonesia's incoming leaders will maintain economic policy continuity with minimal alterations, painting positive prospects for the country's future development.

China's structural transformation takes time; consumption, value stocks eyed

During the two sessions, China has set 2024 GDP growth and deficit ratio targets at levels similar to those of last year's. The market expects more powerful measures from the authorities to achieve their goals. As of now, China's economy is undergoing structural adjustments, with the authorities implementing progressive policies to manage downside economic risks. Yet, the process takes time. Despite uncertainties could dampen consumer appetite, opportunities emerge in select consumer stocks on China's consumption downgrade. In addition, we remain constructive towards Chinese value stocks, including energy and utilities sectors, owing to their sound fundamentals. Energy also serves as a good hedge against geopolitical risks.

Conclusion

Market uncertainties persist. Investors are on edge awaiting the Fed's monetary policy U-turn, while keeping their eyes peeled for further signs of China's economic recovery and ongoing geopolitical tensions. But as inflation eases, risk assets will continue to gain ground. The prospects of a weaker greenback could act as an additional catalyst for Asian assets. As such, investors should stay invested ahead of the well-expected rate cut cycle. Given Asia's manageable inflation levels and sound economic fundamentals, opportunities abound in sectors with structural growth, especially in the tech space.