The Singapore-based asset manager is “constructive on Asia” and expects moderate returns for the region heading into 2024, with Asia’s growth turning firmer in the second half of the year, contingent on a policy-driven recovery in China’s growth.
Among the highlights, Hong Kong retains an overweight position with private consumption strength and continued momentum in inbound tourism likely to sustain economic recovery., according to UOBAM’s latest strategic outlook.
However, while it sees modest improvements in its economic indicators, UOBAM remain cautious on China, and underweight in the near term. As a result. It has a slightly more defensive positioning on Asia in the first few months of the year, as a bigger slowdown in global growth is likely to constrain recovery in Asia’s exports.
Korea remains an underweight too given “lacklustre private consumption” while the domestic market appears vulnerable to lingering concerns over global electric vehicle demand.
However, in addition to Hong Kong, UOBAM has a “relative preference” for Taiwan and India, and it is increasing its overweight in both markets.
Valuations in Taiwan are attractive against nascent signs of a gradual bottoming in the global tech cycle. Meanwhile, India’s GDP growth is the highest in the Asia region,” bolstered by supply side reform, along with the government’s focus on macro stability which should support a strong capex cycle and corporate profitability, it says.
Mixed prospects for Asean
Within Asean, UOBAM is overweight Singapore and Malaysia. “Singapore is a relative safe harbour”, with a higher concentration of dividend-paying stocks. “Likewise, Malaysia is a relatively defensive and low beta market.”
The manager has also upgraded Vietnam to neutral from underweight, as it expects 2024 earnings to rebound on the back of infrastructure investments, foreign direct investment and a recovery in exports.
On the other hand, UOBAM has downgraded Indonesia and Philippines from neutral to underweight. It fears potential policy overhangs from the upcoming presidential election in Indonesia, and expects a downgrade to corporate earnings in the Philippines due to slowing private consumption.
Finally, the asset manager remains neutral on Thailand as an acceleration in fiscal impulse could provide some offset to slower tourism recovery.
Overall, its “defensive positioning” is tilted towards sectors such as consumer staples, REITs and utilities. It is selective within the consumer discretionary and technology space, but is reducing its exposure in financials.
The key risks to its cautious outlook include a US hard landing, a stronger than expected rebound in China’s economy and geopolitical risks (US/China tensions, Israel-Hamas war).
