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Duncan Robertson

Market Outlook

Asia Outlook

Outlook
10 August 2023

By

Portfolio Manager, TT Asia Equity Strategy

Latest Asian economic and market outlook. 

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We remain of the view that developed economies will escape recession, but that growth in the West will be lacklustre as these economies have endured a significant interest rate shock. By contrast, many countries in Asia are accustomed to operating in relatively high interest rate environments, and in any case rates in Asia have not risen by as much as in the developed world as inflationary pressures have been less intense. Consequently, we expect growth in many Asian markets to be relatively strong over the next few years. 

We are most optimistic about domestic demand stocks in structurally attractive markets such as India, Indonesia and Vietnam that will also become more cyclically attractive as US yields begin to fall and the dollar weakens. We are largely concentrating our exposure in these economies in the Financials sector, which we expect to grow faster than the wider economy due partly to low levels of credit penetration. This positioning is also reflective of the fact that many stocks in the sector appear exceptionally cheap. For example, Bank Negara trades at a 10-year P/E trough (excluding Covid), despite our view that its management team is much stronger than it was five years ago, and its balance sheet is far superior. Elsewhere Axis Bank trades on just 10x earnings for a bank that should generate mid-teens credit growth and ROE at the very least.

Clearly the fund has been hurt in recent weeks by being underweight China, where stocks rallied in anticipation of potential stimulus. However, we plan to remain underweight China as we have far higher conviction in the growth potential of other markets. The China bulls make the case that it is cheap versus its history, but it is only 15% below its long-term average multiple. We do not see this as particularly attractive, given the structural challenges facing that market, particularly as the markets we prefer are also cheap versus history. Thus, we do not believe that investors need to take on the risks associated with China to obtain exposure to value in Asia.

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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