Asia presents a vibrant landscape for equity investment as the outlook for earnings has begun to improve across a broader range of markets and sectors, Fidelity International has said.
Namely, the supportive policy measures announced in China in recent weeks, coupled with the commencement of an aggressive rate cutting cycle from the US Fed, are now offering a more favourable backdrop for the region.
Marty Dropkin, Fidelity’s APAC head of equities, explained that, similarly to the US, market leadership in Asia has become narrower since mid-2022.
“The market cap index of MSCI AC Asia ex Japan outperformed the equal weight index as investors focused their capital on large cap and tech-driven companies while paying less attention to the sizeable part of the investment universe,” Dropkin said.
“However, we have seen this market narrowing trend begin to reverse since September 2024 as the gap between market cap index and equal weight index has contracted.”
Expounding on this, Dropkin said this is an indicator of market leadership beginning to broaden, bringing with it opportunities within Asia’s investment landscape.
Moreover, the last three months have seen the outlook for earnings improve across a broad range of markets and sectors in the region, setting the stage for foreign capital to “return to the region”.
“At the market level, several larger members in Asia, such as mainland China, the Philippines, Singapore, Malaysia, Thailand and Taiwan, have received positive forward earnings revisions for the next 12 months,” Dropkin said.
“This is being spread across a number of sectors including healthcare, consumer discretionary, industrials, communications services and technology.
“In addition, supportive policy measures recently announced in China to stabilise the country’s economy, along with rate cuts by the US Federal Reserve, offer a favourable backdrop for regional markets and facilitate the further expansion of market breadth as investment sentiment has improved significantly over recent months.”
Southeast Asia remains compelling
Fidelity reaffirmed that the Association of Southeast Asian Nations (ASEAN) continues to offer a diverse and attractive investment opportunity.
Young demographics, a competitive labour force, increasing urbanisation, and a growing middle class in member countries like Indonesia and the Philippines are driving long-term structural demand trends, which are expected to lead to enhanced consumption and economic growth.
However, the firm noted that the shorter-term prospects have been less convincing in recent years.
“After a couple of lacklustre performance years, investor confidence towards ASEAN has significantly improved thanks to the Fed’s rate-cutting cycle, which is seen as positive for the region as a weakened dollar alleviates pressure on local currencies and creates room for ASEAN countries’ own monetary easing,” Dropkin said.
“On top of that, China’s policy stimulus has further boosted market sentiment as more investment capital is expected to be directed to the ASEAN region as the manufacturing base in China diversifies into the region.”
Moreover, a multi-year trend has emerged, with ASEAN economies attracting significant foreign direct investment, particularly in sectors like manufacturing and technology.
Dropkin added: “Companies are seeking to leverage lower-cost production bases and engage in major themes for the next decade, such as the EV supply chain, strategic materials, and data centres.
“Supply chain shifts towards ASEAN markets, including Malaysia and Vietnam, are further bolstered by the region’s strategic location and infrastructure development, making it an attractive hub for global trade.”
As a whole, ASEAN equities are also gaining traction from global investors, backed by a combination of a positive economic outlook, stable political outlook, and currency appreciation.
“Collectively, these factors create a compelling case for investment in ASEAN, with its mix of short-term opportunities and long-term growth prospects.”
