We expect more aggressive policy support from Chinese authorities over the next several months for consumption and business activities, prompted by the still uncertain global trade situation.
Despite the ongoing volatility and uncertainty surrounding US-China tariff policies, there are encouraging signs that the situation may improve. India could be one of the only large global economies to benefit from US policies. Such a potentially advantageous position, along with “lower-for-longer” energy prices, have formed the foundation of our more constructive view on India recently. Pro-growth consumption policies and structural reforms will also likely enable Indian companies to recover in the year ahead.
While the stock markets of South Korea and Taiwan are among the most sensitive to trade disruption, we have observed several companies already adapting to limit those risks. In ASEAN, amid uncertainties regarding structural reforms and political issues, we prefer the markets of Singapore, Malaysia and the Philippines with their relatively stable politics and tech-driven economic growth.
More domestic policy measures needed to boost Chinese market outlook
Market volatility reached record highs after Trump announced what he called a “reciprocal tariff” strategy on Liberation Day (2 April) and subsequent backtracks on many of the tariffs. China has been fighting back with reciprocal tariffs amid the shifts in the global supply chain. Given the still uncertain global trade situation, we can expect more aggressive policy support from Chinese authorities over the next several months to support consumption and business activities. While green shoots were emerging, in both AI-related technology spending and the real estate market which showed signs of stabilising, these developments could face challenges if a protracted trade war ensues.
One reason we are more constructive on Chinese equities is the country’s positive liquidity dynamics. Low government bond yields were in part a symptom of excess savings seeking a safe haven and should confidence return, could lead domestic institutions to redirect their capital to equity markets for better returns. To that end, China’s securities regulator is further encouraging more investments in the equity market by unveiling measures for state-owned insurance firms to invest 30% of annual premiums from new policies in the domestic A-share markets. Despite the initial uncertainty stemming from US tariffs and retaliatory measures from Beijing, there are encouraging signs that the situation may improve. Given escalated trade concerns, domestic policy support is likely needed to maintain this momentum.
More constructive on the overall outlook on Indian equities as we maintain preference for large-cap stocks
We have become more constructive on India as a result of the events over the past four to five weeks. India is perhaps one of the only large global economies that could benefit from US policies—both through a greater share of incremental manufacturing (see Apple’s recent announcement to shift all iPhone production to India) and from “lower-for-longer” energy prices. Pro-growth consumption policies and structural reforms will likely enable Indian companies to recover in the year ahead. We see the recent correction as a healthy occurrence that hopefully presents investors with opportunities to invest in some high-quality companies at much more reasonable valuations. We retain a preference for large-cap equities over small- and mid-cap companies, given much more attractive valuation differentials.
Several companies in South Korea and Taiwan already adapting to Trump’s trade disruptions
Despite the recent political turmoil characterised by leadership instability and public protests, South Korea has delivered impressive index returns of over 7.8% year-to-date on the back of strong corporate results and the “Value-up” programme. South Korean companies continue to grow globally and deliver good returns at reasonable valuations. The stock markets of South Korea and Taiwan are among the most sensitive to trade disruption, and we observe several companies already adapting to limit those risks. One additional consideration is that South Korea may benefit from increased incentives from Chinese policymakers in their efforts to strengthen relationships and facilitate regional trade amid tensions with the US. Unfortunately, this is not something we can say for Taiwan.
Singapore, Malaysia and the Philippines preferred markets in the ASEAN region
With uncertainties regarding structural reforms and political issues, ASEAN has underperformed China significantly year-to-date but the dispersion within is significant. Singapore, Malaysia and the Philippines remain the preferred countries with relatively stable politics and tech-driven economic growth. We continue to believe that structural drivers of fundamental change remain. Thailand has stood out, showing a significant decline in returns, with its index decreasing more than 12.5% so far this year, driven by a decline in tourism, concerns over high household debt, political uncertainties and corporate scandals. Over the same period, Indonesia’s index delivered a -2.7% return, after seeing a recovery in April following better-than-expected political developments. Notably, Indonesia has not undergone a significant cabinet reshuffle, and state-owned banks are not subject to military influence for now.
