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Harnessing ChangeMonthly Insights: Asian Equity (May 2024)
Regional equities register robust returns alongside global peers

By the Asian Equity Team
25 June 2024

Summary— The early economic cycle dynamics and cheap valuations in Asia contrast
starkly with the expensive late cycle dynamics in the West, and we expect
this to provide good diversification options for global investors.
— In May, the MSCI AC Asia ex Japan Index climbed 2.4% in US dollar (USD)
terms. Taiwan (+6.6%) and China (+3.9%) led the region, while thePhilippines (-7.2%) and Indonesia (-6.8%) were the laggards. Stocks had astrong month on renewed investor confidence that inflation was easing,and that the US Federal Reserve (Fed) would cut interest rates this year,
although the exact timing remains uncertain.
— With the market rebounding from its trough and authorities accelerating
the pace of property easing to its most intense level yet, the improving
dynamics in China have undoubtedly supported risk sentiments in theregion. Whilst the jury is still out on whether the Chinese economy is truly
out of the woods, what is evident is that there has been a clear rebasing ofgrowth expectations in China. In our view, a stabilising Chinese economy,
coupled with an accelerating pace of fiscal stimulus, should continue toenhance prospects for Asia.

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Market review
Asian markets generally in the black
Global markets were back in positive territory in May, with the MSCI Asia Ex Japan Index gaining 2.4% in US dollar
terms. Stocks had a strong month, bolstered by renewed investor confidence that inflation was easing and that the
Fed will cut interest rates this year, although the exact timing remains uncertain. Surprisingly robust first-quarter
corporate earnings also lifted sentiment.
Chart 1: 1-yr market performance of MSCI AC Asia ex Japan vs. Emerging Markets vs. All Country World Index
130

MSCI AC Asia ex JapanMSCI Emerging Markets

MSCI ACWI

Jul-2023

Nov-2023

Mar-2024

120

110

100

90
May-2023

Sep-2023

Jan-2024

May-2024

Source: Bloomberg, 31 May 2024. Returns are in USD. Past performance is not necessarily indicative of future performance.

Chart 2: MSCI AC Asia ex Japan versus Emerging Markets versus All Country World Index price-to-earnings
35

MXASJ Index

MXEF Index

MXWD Index

30
25
20
15
10
5
0
May-2014

May-2016

May-2018

May-2020

May-2022

May-2024

Source: Bloomberg, 31 May 2024. Returns are in USD. Past performance is not necessarily indicative of future performance.

Investor sentiment towards Chinese stocks continues to improve
In North Asia, China (+3.9%) unveiled sweeping measures to support the struggling housing market, including
removing the floor on mortgage rates, lowering downpayment and encouraging local governments to acquire
homes to convert them into affordable housing. To support its economy, China also began selling the first batch of
its Chinese yuan one trillion of ultra-long special sovereign bonds. Meanwhile, consumer spending growth
unexpectedly cooled to 2.3% in April, while industrial production rose to a faster-than-expected 6.7%. Hong Kong
gained 2.7%, as investors were encouraged by policy support from China. The Hong Kong economy also registered a
2.7% year-on-year (YoY) growth in the first quarter.
South Korea (-3.0%) continued to keep policy restrictive, maintaining the current 3.5% benchmark rate, while
reiterating risks around inflationary pressures. Separately, the country unveiled a USD 19 billion support package tobolster its chip sector to compete in the global semiconductor market, amid soaring demand for advanced chips.
Export growth continued in May, led by demand for semiconductors, as headline exports rose 11.7%. Elsewhere,
Taiwan’s (+6.6%) trade-reliant economy is expected to grow at a faster pace in 2024 than previously forecast, due tohigh demand for AI applications abroad.

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ASEAN markets lag their regional peers
ASEAN markets displayed mixed performances. Central banks in the Philippines (-7.2%), Indonesia (-6.8%) and
Malaysia (+3.5%) kept their interest rate policies steady. Singapore’s (+3.5%) government kept its GDP growthforecast for this year unchanged at 1–3%, while confirming a 2.7% YoY expansion for the economy in the first-quarter.
Thailand (-0.9%) is planning on a supplementary budget of USD 3.4 billion to finance its so-called digital wallet
programme to stimulate its economy.
Indian equities rise over the period
Indian equities gained 0.8% as investors waited for the official results of India’s national elections where Prime
Minister Narendra Modi sought a third term in power. S&P Global Ratings raised India’s sovereign rating outlook to
positive from stable, citing the country’s strong economic fundamentals. India's annual retail inflation rate continued
easing, albeit marginally, to 4.83% YoY in April, partly due to lower fuel prices, although food prices remained elevated.
Chart 3: MSCI AC Asia ex Japan Index¹
For the month ending 31 May 2024

For the year ending 31 May 2024
INDIA

TAIWANTAIWANCHINA

MALAYSIA

MALAYSIASINGAPORE

SINGAPORE

CHINA

HONG KONG

SOUTH KOREA

INDIA
THAILANDPHILIPPINESSOUTH KOREA

HONG KONG

INDONESIATHAILANDPHILIPPINESINDONESIAMSCI AC Asia ex JapanMSCI AC Asia ex JP

-10%

-5%

0%

5%

10%

-20% -10% 0%

10% 20% 30% 40%

Source: Bloomberg, 31 May 2024.
¹Note: Equity returns refer to MSCI indices quoted in USD. Returns are based on historical prices. Past performance is not necessarily indicative of
future performance.

Market viewAsia’s early economic cycle dynamics and cheap valuations present a stark contrast to the WestWith the market rebounding from its trough and authorities accelerating the pace of property easing to its mostintense level yet, the improving dynamics in China have undoubtedly supported risk sentiments in the region. Whilst
the jury is still out on whether the Chinese economy is truly out of the woods, what is evident is that there has beena clear rebasing of growth expectations in China. Slower growth expectations are now unanimously accepted as themarket refocuses on fundamentals. In our view, a stabilising Chinese economy, coupled with an accelerating pace offiscal stimulus, should continue to lift prospects for Asia. The early economic cycle dynamics and cheap valuations in
Asia contrast starkly with the expensive late cycle dynamics in the West, and we believe this offers good diversification
options for global investors.
Alpha generation in China will continue to be driven by bottom-up stock picking
In China, we are particularly encouraged that the central government is now taking a more active role in recent fiscal
easing policies. De-stocking the housing market is also now a key focus for the regime, which could contribute greatly
to stabilising the property market. While a lot more needs to be done for China to transition away from its reliance on
property, the country is at least taking steps in the right direction. We expect longer-term reforms for the economy
to be unveiled in the upcoming Third Plenum in July. In our view, alpha generation in China will continue to be driven
by bottom-up stock picking, especially in companies that stand to benefit from positive, fundamental changes in the
Chinese economy.

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Start of a private capex cycle post-election expected to drive the next leg of growth in India
Following significant increase in infrastructure investments over the past few years, we continue to look forward to
the start of a post-Indian election private capex cycle, which we expect will drive the next leg of growth in the country.
That said, we are cognisant that valuations are fairly full in pockets of the small- to mid-cap space. We continue tofavour companies exposed to the improving domestic infrastructure, as well as online consolidators. ASEAN countries
like Indonesia also enjoy similar dynamics to India, but to a smaller extent. Economic activity remains robust, andcentral banks have the capacity to commence easing cycles.
Elsewhere, thanks to the structural wave of generative AI demand, technology companies in Taiwan and South Korea
are well positioned to reap dividends as edge AI devices become more widespread. This trend could trigger anotherupgrade cycle as AI-capable devices such PCs and smartphones necessitate the use of newer, more powerful chipsets.
Chart 4: MSCI AC Asia ex Japan price-to-earnings
30

MSCI AC Asia ex Japan Price-to-Earnings

Average P/E- 1 sd2020

2022+ 1 sd

25
20
15
10
5
2014

2015

2016

2017

2018

2019

2021

2023

2024

Source: Bloomberg, 31 May 2024. Ratios are computed in USD. The horizontal lines represent the average (the middle line) and one standard
deviation on either side of this average for the period shown. Past performance is not necessarily indicative of future performance.

Chart 5: MSCI AC Asia ex Japan price-to-book
2.5

MSCI AC Asia ex Japan Price-to-Book- 1 sd+ 1 sdAverage P/B

2.0

1.5

1.0
2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Source: Bloomberg, 31 May 2024. Ratios are computed in USD. The horizontal lines represent the average (the middle line) and one standard
deviation on either side of this average for the period shown. Past performance is not necessarily indicative of future performance.

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