A “sturdy” US economy is supporting areas of strength in both advanced and emerging Asia. North Asia, particularly Korea and Taiwan, is seeing a boost from positive net-trade momentum—resulting in the early stages of a cyclical upturn, according to the latest UBS Global Wealth Management CIO report.
UBS GWM CIO has a “clear preference for quality and large caps in Asia”. In particular, it favours a benchmark-heavyweight driven strategy, given Asian titans hold solid market share positions, resilient growth outlooks, and other fundamental supports.
Within Asia technology, the Swiss wealth manager likes AI beneficiaries that are trading at reasonable valuations, China’s software and cybersecurity segments, and IT services.
It sees cloud revenues accelerating across leading hyper-scaler vendors, “thanks to rising contributions from AI, which suggest AI monetization is picking up”. There is also “broad-based increase in AI-related capex, with improving visibility for AI infrastructure spending.
While it believes most of the near-term spending in generative AI computing will focus on data center investments, the bank thinks end-device AI chips and AI edge-computing can provide low latency and personalised generative AI services that are less resource-intensive.
Among other sectors in Asia, UBS GWM CIO sees growth prospects among banks and ex-China consumer proxies at attractive valuations.
On a country basis, the wealth manager most prefers India, whose “macro conditions are still supportive”, and where “earnings will keep trending upwards”. Despite the general election in April and high stock market valuations, “the downside risks for India look manageable for now”.
Indonesia is another favourite. “Given high policy rates, moderating inflation, and healthy FX reserves, Indonesia could be one of the first markets in the region to deliver a rate cut – which would benefit the financial stocks that comprise about 60% of the country’s equity market.
Confidence in China
Perhaps surprisingly, China also remains a “most preferred” country in the region.
UBS GWM CIO notes that Chinese equities have rebounded since late January, triggered by a potential RMB 2trn ($27.8bn) market stabilization fund, a 50 basis points cut in the RRR (reserve ratio requirement) cut, and stronger regulatory actions.
“Given low stock valuations and the government’s supportive policy stance, we stay most preferred,” the CIO said, although it will look out for stimulus clarity from China’s “Two Sessions” meetings this month.
Yet, select Hong Kong equities can be a lower risk proxy to a turnaround in mainland China, according to the bank.
Dividend yields are at the high end (4.3% on average) compared with both history and their onshore peers, offering some protection amid the volatility. “The market is also more sensitive to Fed policy, which we still expect to begin easing from mid-year onwards. Finally, the close correlation between MSCI HK and MSCI China makes the former a beneficiary of greater onshore policy and macro upside,” said the bank.
On the other hand, UBS GWM CIO remains confident about China’s medium- and long-term opportunities.
“Value-driven retail trends, increasing global presence, and strengthening technology supply chains are three core drivers that will likely dominate the investment landscape in China’s new normal of moderating growth,” it said.
The banks advises investors to take positions in names that benefit from these investment drivers in the autos, consumer, healthcare, technology, and gaming sectors.
