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Asia Perspectives - A review of opportunities and risks in our preferred EM Asia equity markets: South Korea, Indonesia and India

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Asia Perspectives - A review of opportunities and risks in our preferred EM Asia equity markets: South Korea, Indonesia and India

Nov 30, 2023

  • As we look towards 2024, we expect global inflation to edge lower and central banks should begin easing monetary policy next year. In our view, this will be a catalyst for equity markets, including EM Asia as peak policy rates (followed by cuts later in 2024) should also provide scope for bond yields to move lower, supporting valuations
  • We maintain our mild overweight positioning on EM Asian equities, with preference for India, Indonesia, and South Korea. We believe earnings growth will drive EM Asian equity markets in 2024. Consensus points to EPS growth rising from 3 per cent in 2023 to approximately 23 per cent in 2024
  • However, we highlight a potential key risk to watch out for. A particular feature of 2024, especially in the first months of the year, is a busy election schedule across Asia, which includes Taiwan, Indonesia, South Korea, and India. With the election schedules in all our overweight markets, there should be some expectations that polls and politicians could add volatility to these equity markets
  • We upgraded South Korean equities from neutral to mild overweight this month to position for the improvement of the global tech cycle. We anticipate the main catalysts to include the memory upcycle driven by AI-related demand, as well as DRAM price recovery. Moreover, South Korea is expected to be the fastest growing market in Asia in terms of EPS expansion in the next 12 months. We also see opportunities in ex-tech areas
  • In our view, Indonesia’s medium-term structural growth story and its investment thesis of climbing up the manufacturing value chain remain intact. However, Indonesia equities have largely underperformed in the past few months, reflecting caution from prior to next year’s election. Indonesia equities have tended to underperform the broader ASEAN before elections and outperform after. As such, we stay optimistic in Indonesia equities over a longer horizon, but there could be headwinds over the coming months
  • We hold our mild overweight on India equities even as the India equity market’s strong run faces some headwinds. In the near-term, uncertainty around elections may increase market volatility, especially for the small-and-mid cap sector. That is why we maintain our preference for India large caps over the small-and-mid caps. Investment flows could pick up after the election uncertainty fades, just like in previous cycles

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