Schroders continue to see Asia equities as an attractive asset class for investors in 2025 and believe that hurdles can be navigated through strong bottom-up stock picking in quality companies.
The main problems it identifies include higher US tariffs and a strong dollar, the sustainability of heavy capital spending on AI by Asian technology companies without sufficient returns, and slower growth in regional leader India.
However, private sector banks “with excellent deposit profiles and the ability to benefit from a tighter monetary policy backdrop” offer opportunities this year, according to Tom Clough, fund manager, Asian equities at Schroders.
“We would particularly call out private Indian banks that have not underwritten troublesome unsecured loans, Singapore banks that benefit from world-class institutional frameworks, as well as select pan-Asia banks that have been through a long period of de-risking their balance sheets and continue to trade at cheap multiples,” he wrote in an investment note.
Schroders also backs “unloved Hong Kong stocks” that in some cases are “world-class operators and increasingly seeing positive capital return policies, which we believe will improve their depressed valuations”. Clough also highlighted gaming, music content and online travel sectors in mainland China.
Finally, Clough noted that dividend payout ratios are very closely linked to better corporate governance in Asia, so companies which are moving to rewarding shareholders with higher payout ratios will potentially perform well in 2025.
“More than ever, we think 2025 will be a year which rewards investors who are disciplined and focused on fundamentals and bottom-up stock picking,” Clough concluded.
