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Indosuez WM expects modest returns from Asian equities

The firm is positive on China, Singapore and Korea, but is overall neutral towards Asia.
Winnie Chiu, Indosuez Wealth Management

There will be many chances for investors to explore opportunities on the road to recovery in Asia, Winnie Chiu, senior equity advisor at Indosuez Wealth Management, told a webinar this week.

“China is the least affected by any US rate hikes, because it has a larger domestic economy and differing business cycles. It is therefore attractive compared to other markets. But until consumption and growth show clearer signs of recovery, we stay with our neutral view on China stocks,” Chiu said.

“However, overall, we are neutral on Asian equities within the region,” she added.

Asian equities should deliver modest returns this year, given higher interest rates and normalised economic growth. Earnings per share in the region will grow by around 11% and in China it should reach around 14%, Chui predicted.

The market expects India’s earnings per share to achieve the highest growth of 19%, but a potential strong interest rate hike could weigh on delivery that expectation. Elsewhere, Malaysia and Taiwan could see lower growth of 3% to 8%. 

In terms of valuations, the regional index now trades at 13 times price-to-earnings ratio (PE) against the 16 times average PE for the developed markets. China, South Korea, and Taiwan are the most attractive in terms of PE to growth valuation. 

Three themes

Indosuez WM has three main investment themes for Asian equities. First, earnings delivery will be the key driver of stock performance in a rising rate environment. 

“We believe market will continue to reward companies that demonstrates sustainable growth. Therefore, we are positive on banks, financials, consumer staples, renewable energy, tech hardware, and semiconductors,” Chiu said.

Second, climate change is forcing governments to accelerate decarbonization. The transitions from fossil to clean energy will be driven by huge investment in new energy infrastructure and the shift of carbon heavy industries to reduce emissions. 

According to the International Energy Agency and World Bank, emerging countries, including Asia, will need to spend at least $1trn a year over the next decade in order to achieve net zero emission by 2050. Green stocks such as energy solutions, renewable energy, alternative energy will continue to be in favour.

Finally, as interest rate rises, banks will outperform on improving net margins and financials will “continue to enjoy higher portfolio use”. 

The firm is positive on Asian financials, especially Singapore banks with strong fundamentals in the regions. Elsewhere, major policy banks in China with least exposure to real-estate should benefit from a larger credit impulse led by the Peoples Bank of China, according to Chiu.

Part of the Mark Allen Group.