Duncan Robertson

Market Outlook

Asia Outlook


Latest Asian economic and market outlook. 


We have now seen a significant sell-off in global equities, with most markets looking reasonably cheap, particularly in Asia. Inflation and central bank tightening remain key concerns, but the former has probably peaked, and we believe it is now unlikely that rate hikes exceed investor expectations. Whilst markets appear very oversold on most indicators, and we are open to the idea that they could have bottomed, we are also mindful of the risk of further earnings downgrades. Indeed, the downgrades that we have seen thus far have not been as significant as in a typical recession or bear market. Thus, we are trying to ensure that the stocks we are holding are either those where we have very high confidence in earnings, or those where we believe that the stock price has pre-emptively discounted significant downgrades and an overly pessimistic scenario. 

In terms of catalysts required for market sentiment to shift decisively, perhaps the most important would be an easing of inflationary pressures that allows the Fed to tighten less aggressively and dollar strength to gradually abate. Another catalyst would be any positive progress with Russia and Ukraine as this would lower the risk premium and help to reduce inflationary pressures. China becoming sufficiently vaccinated to ditch its zero-COVID policy would also be a key catalyst. Unfortunately at this stage there is limited visibility on any of these issues, except perhaps inflation to some degree. Although we think inflation has likely peaked, the problem is that it has done so at a very high level and, unless it comes down much quicker than investors and policymakers expect, it’s hard to see the Fed backing off any time soon. This could lead to further dollar strength, which is a headwind for Asia. With regard to China, it appears that the situation is improving in Shanghai, which could provide some short-term respite, but we remain mindful that the zero-COVID policy hasn’t changed, so it is quite possible that we see more lockdowns in the future, at least until the Chinese population has been sufficiently vaccinated. In this regard, it is highly unfortunate that the Chinese appear determined to develop their own MNRA vaccine, rather than securing supplies from the West. 

In recent weeks we have been adding to Indian Financials as we believe they offer the best structural growth opportunities within the sector and also benefit from the cyclical positive of higher yields. We have also added to more defensive structural names in the Tech sector such as TSMC and Chroma that appear to have sold off excessively, reducing more cyclical names in the memory and MLCC space, including Samsung, SK Hynix and Yageo. Finally, we continue to run our EV battery supply chain and renewables themes as we believe the structural growth opportunities continue to improve for these companies.  

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