Japanese and Indian equities were favoured markets last year, and that momentum is likely to be maintained in 2024. There should also be opportunities in other Asia Pacific countries, according to M&G.
“Investment sentiment has been hot towards Japan, and stocks still look less expensive than in India from a bottom-up perspective,” Michael Dyer, investment director for multi-asset strategies (Hong Kong), told a recent media roundtable in Hong Kong.
His focus is particularly on Japanese companies that are returning cash to shareholders, and are selling down peripheral assets to concentrate on their core businesses. Dave Perrett, co-head of Asia Pacific equities (Hong Kong), emphasized the importance of stock picking in Japan, rather than taking a top-down approach.
The greatest risk for Asian equites, is if inflation is persistent in the US, which might restrain the Federal Reserve from its widely expected interest rate cuts. This might make Asia central banks reluctant to cut their rates, despite meeting their inflation targets.
Vikas Pershad, portfolio manager, Asian equities (Singapore), continues to favour India equities – although he now is more circumspect about overvaluations in some sectors. Momentum is still driving the market, as local investors switch out of cash and gold, but Pershad believes the market is increasingly being driven by supply chain developments (including reshoring from China), rather interest policies in India or the US.
Among Southeast Asia markets, M&G is selectively optimistic. It like mid-caps in Indonesia and Malaysia, Singapore banks and has a possibly contrarian positive outlook for Thailand.
The economic headwinds facing China, especially the struggling property market, debilitating local government debt and problems in the financial sector, as well as anxieties over governance issues, means that Chinese equities have found little international support.
However, M&G is “buying some Hong Kong and Chinese equites as an outside bet”, said Dyer, especially global companies listed in Hong Kong that are trading at significant discounts.
Outside Asia, M&G, which has $423bn of AUM (as at 30 June 2023), prefers fixed income to equities, and has recently shortened duration in its bond strategies.
