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Duncan Robertson

Market Outlook

Asia Outlook

Outlook
12 October 2025

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Portfolio Manager, TT Asia and TT Global-Smid Cap Strategies

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Latest Asian economic and market outlook. 

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In a big picture sense, the US dollar is weakening, tariffs continue to bite, and Developed Market growth is generally mediocre and highly reliant on AI investment. For all these reasons, we are primarily focusing on domestic demand in Asia. It is relatively well insulated from the aforementioned risks, and benefits from the fact that Asian central banks will be freer to set monetary policy according to their own growth and inflation dynamics, with less fear of currency weakness now that the dollar seems to have peaked.

We believe that Indonesia will see a particularly big change in how monetary policy is set. Given its institutional memory of the Asian Financial Crisis and the fear of currency weakness, its central bank is arguably most affected by FX concerns, meaning policy has been particularly tight at a time when growth was weak. However, the significant US dollar regime change should enable rate cuts and improving liquidity, ultimately stimulating growth. On the political front, there is typically a ‘settling in’ period with any new government. Probowo’s administration is no different. There were undoubtedly some mistakes made, particularly the sharp up-front budget cuts, followed by a gradual implementation of fiscally expansive policies. These decisions led to an initial contractionary fiscal impulse, but this should be reversed as the free school meals programme picks up.

In common with Indonesia, the Philippines should be free to set its monetary policy more in line with local conditions, boosting an economy that is already growing at a reasonably pace. It stands out as being the cheapest market in Asia in absolute terms, and by far the cheapest market in Asia relative to its own history. On a PE basis, the Philippines trades at the same level it was at during Covid and the GFC, which is unique in Asian markets and perhaps globally. These deeply discounted valuations are extremely difficult to justify based on the fundamentals. The Philippine market ROE is currently very near a 10-year high, and earnings revisions are positive. Buyback activity is running at twice the rate it was last year. At the current run rate, the share count in the Philippines is shrinking by about 0.5% per annum.

India’s recent underperformance of the wider market has been of a near-record magnitude. The premium of India relative to other Asian and Emerging Markets has now fallen from very elevated levels to near its long-term average. However, we believe the Indian economy is likely to re-accelerate due to positive fiscal stimulus from cuts to income tax and GST, alongside a simplification of the GST regime. On the monetary side, the new governor of the RBI is far more pro-growth, and has already rowed back on many of the macroprudential pressures that were curtailing bank growth. We therefore believe that loan growth will accelerate, credit costs will fall, and operating leverage will improve. Consequently, our exposure remains focused on Indian banks, and domestic demand more generally.

China remains our biggest underweight. Stock selection in the market has been very positive for us this year, and we are hopeful that this will continue as the environment appears to be becoming more favourable to our process. There have been challenging periods over the past five years where the private sector economy came under assault from the government, and SOEs materially outperformed, despite fundamentals not being particularly attractive. It is therefore encouraging that the private side of the China market is now performing better. However, we still believe there are many areas in China that investors simply don't need to be. The economy continues to battle deflationary pressures, and the property cycle is not picking up amid serious oversupply issues. We therefore continue to avoid banks, property, construction materials and SOEs. Although we have been adding selected new positions in China, ultimately we believe that there is generally better value in ASEAN and strong competition for capital from the likes of Korea and Taiwan.

Whilst predominantly focused on domestic demand, within export-exposed areas the portfolio has two key buckets: AI and clothing & footwear manufacturers. We have taken some profits in the former on valuation concerns, and added to the latter through the purchase of Shenzhou International. It is a clear leader in the space, and appears to be consolidating this position, gaining share within several of its key customers. The company offers a net cash balance sheet and a very attractive 5% dividend yield.

Important Information:

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

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