China’s reopening is leading the attractive path forward for Asian equities, but investors should remain selective, according to abrdn.
Speaking to Money Management, Christina Woon, abrdn’s Singapore-based Asian equities investment director, observed that China’s economic recovery would be led by domestic consumption.
“Asia valuations are cheaper, so that’s why we think it’s quite an attractive time now. Conversely with the developed market, people are talking about recession and inflation [risks] which are much higher than what we see in Asia. We do see a difference in attractiveness,” she said.
However, the growth trend was not tracking as quickly as the market initially expected.
“We would argue that those expectations which came out of November last year with that sharp rise were a bit unrealistic. Things are coming along, just slower than everybody expected,” Woon explained.
“We have to watch the trajectory of China’s reopening, with the risk on the expectation side. The market does tend to run ahead of itself sometimes, so that’s where you would have to be disciplined.”
Investors who were late to the Chinese recovery story towards the end of 2022 now had another opportunity but at a better time.
“You haven’t had the past six months of misses in expectations,” Woon said.
The domestic recovery narrative was not unique to just China, with Woon expecting a spillover effect to the rest of the region.
Premium Asia Funds Management previously encouraged investors to keep an eye out for Asian economies in the south-east, such as India, Vietnam, Malaysia, and Thailand.
Moreover, emerging markets were generally ahead of the inflation curve when compared to developed markets.
Despite this, Woon recognised that Asia was not entirely insulated from the impact of a potential US recession.
“It is quite important to be selective as well. Some [assets] will still be affected by global macro-economic pressures,” she said.
The investment director reminded investors to choose equities that played into domestic consumption themes and led to long-term structural growth.
Woon continued: “We are being a bit more cognisant about our exposure where there is more of a favourable demographic profile.”
Markets with a younger population, including India and Indonesia, would continue to grow into a rising middle-income class and therefore more insulated from global recessionary risks, she said.
“That’s where that tailwind will support on the growth front, even if globally there might be some pressures on the economy,” Woon said.
Backing companies that had a dominant share in a growing industry would set investors up for steady growth.
Tourism and technology hardware, particularly in the semiconductor space, were sectors riding the recovery journey.
