Latest Asian economic and market outlook.
We are broadly positive on equity markets in 2024 – both global and Asian – primarily because inflation data continues to undershoot expectations, while growth is holding up better than feared. With inflationary pressures subsiding and labour markets remaining reasonably strong, consumers’ disposable incomes should now be growing. So far this has led to a significant pickup in the savings rates of many economies. For example, in the UK over the past 30 years, the savings rate has only been higher roughly 10% of the time. However, if consumers become more confident about falling interest rates in 2024, they should begin to increase their spending. Even if end demand simply remains stable, the actual demand that many companies will see for their products should increase as we appear to be reaching the end of the inventory cycle. This is true in many areas, from sportswear to tech and consumer electronics. An end to the destocking cycle should boost industrial production, which typically coincides with strong Asian equity market performance.
The key risk to this optimistic outlook is valuations. At the aggregate index level, valuations in Asia are reasonable, but that is largely because China is cheap. The other key markets in Asia are generally trading slightly expensive or outright expensive versus their long-term averages. Crucially however, our portfolio is not tied to the index, and we still do not have a problem finding value, particularly in smid-cap stocks.
From an individual market perspective, positioning remains broadly unchanged. India is our key overweight as we expect a turn in the investment cycle, continued government investment, and increased investment from multinationals to capture India’s domestic market and diversify their manufacturing bases away from China. We are also positive on Vietnam as it offers another key investment destination for companies looking to move away from China. Vietnamese FDI data remains very healthy, supporting the argument that the country will continue to outperform other Asian economies from an export perspective, which should boost GDP, earnings growth and stock market performance. Conversely, China remains the key underweight for all the reasons discussed in recent months.
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).