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Harnessing ChangeMonthly Insights: Asian Equity (February 2024)
A positive month across regional markets, with China leading the packBy the Asian Equity Team
21 March 2024

Summary— We think that there could be some short-term rebound in China as
valuations are in extreme oversold territory. However, for the rally to be
more sustainable, we are monitoring for a few drivers, including supply-side
measures that can resolve China’s main housing issues. India is on the
opposite end of the spectrum, with positive sentiments all around, behindthe country’s infrastructure investment push and rapid penetration ofcheap smartphones and the internet.
— For the month, the MSCI Asia Ex Japan Index climbed 5.6% in US dollar (USD)
terms, propelled by Chinese markets that gained on supportive domestic
policy measures. A rally in artificial intelligence (AI) stocks, as well as
optimism about economic growth at a time of easing monetary policy
helped to power global markets higher.
— China (+2.4%) and South Korea (+1.0%) led the region in February, while
gains in Thailand (+0.7%) and Singapore (+0.9%) were more modest overthe month.
— In the US, with excess savings nearly spent and fiscal thrust turning to drag,the current tight monetary environment could result in further
disinflationary pressure. The resultant weaker US dollar and looser liquidity
environment would be a boon for Asia, which still has plenty of room for
rate cuts.

FOR SOPHISTICATED INVESTORS ONLYMONTHLY INSIGHTS: ASIAN EQUITY (FEBRUARY 2024)

Market review
Asian markets climb higher in February
Asian markets climbed 5.6% in USD terms in February, according to the MSCI Asia Ex Japan Index, lifted as the
Chinese markets gained on supportive domestic policy measures. A rally in AI stocks, including those of chipmakerNvidia—whose shares erupted after earnings exceeded forecasts—as well as optimism about economic growth ata time of easing monetary policy helped to power global markets higher.
Chart 1: 1-yr market performance of MSCI AC Asia ex Japan vs. Emerging Markets vs. All Country World Index
130
120

MSCI AC Asia ex JapanMSCI Emerging Markets

MSCI ACWI

110
100
90
80
70
60
Feb-2023

Apr-2023

Jun-2023

Aug-2023

Oct-2023

Dec-2023

Feb-2024

Source: Bloomberg, 29 February 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
Feb-2014

Feb-2016

Feb-2018

Feb-2020

Feb-2022

Feb-2024

Source: Bloomberg, 29 February 2024. Returns are in USD. Past performance is not necessarily indicative of future performance.

North Asian markets outperform, led by a rebounding China
North Asian equity markets outperformed, led by China which rose 8.4%. The Chinese markets recovered someground, responding positively to the new domestic policy efforts aimed at shoring up ailing markets. Chinese lenders
slashed their five-year loan prime rate—a benchmark for home loans—by 25 basis points (bps) to support China’s
troubled property sector. The China Securities Regulatory Commission unveiled new trading curbs on short-selling,including barring brokerages from further expanding lending of stock certificates for that purpose. The Chinese
cabinet also initiated a leadership reshuffle by replacing Yi Huiman, the chairman of the securities regulator, with Wu
Qing. Central Huijin Investment, a Chinese sovereign fund that owns China's state-run banks, pledged more support
including buying more exchange-traded funds. In Hong Kong, Financial Secretary Paul Chan scrapped property
cooling measures to bolster the sector during his 2024 budget speech; Hong Kong stocks rose 4.6%.

Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in the strategy’s
portfolio, nor constitute a recommendation to buy or sell.

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MONTHLY INSIGHTS: ASIAN EQUITY (FEBRUARY 2024)

The continued surge in AI demand drove the tech-heavy markets of South Korea (+7.4%) and Taiwan (+5.5%) higher
over the month. South Korean authorities also unveiled a “Corporate Value-up Program” that seeks to incentivise
companies that prioritise shareholder returns, similar to Japan’s corporate governance push last year. The Bank of
Korea left the key interest rate steady at 3.5% in a sign of continued caution against inflationary pressures. Taiwan
sees its economy rebounding this year and revised up its 2024 GDP growth forecast to 3.43% as exports recover.
Share prices in ASEAN rise as well
ASEAN markets also gained in February. In Indonesia (+3.2%), traders are betting on policy continuity after Prabowo
Subianto declared victory in Indonesia’s presidential vote. The Philippines (+5.5%) saw its headline inflation fall
sharply to 2.8% year-on-year (YoY) in January, the lowest figure in over three years, mainly due to lower food prices.
In Malaysia (+2.4%), the ringgit extended its decline to the weakest level since the height of the Asian financial crisis,
but Malaysia’s central bank has stepped up its rhetoric that it would “restrict excessive weakness in the ringgit”.
Singapore (+0.9%) and Thailand (+0.7%) saw more muted gains during the month.
Appetite for Indian equities continues
Indian stocks continued to gain steam, rising 2.7% in February. The Reserve Bank of India kept the benchmark
repurchase rate at 6.5%, retaining its “withdrawal of accommodation” policy stance. Retail inflation cooled to a threemonth low of 5.1% in January primarily due to lower food prices. India then reported that its GDP expanded 8.4% YoY
in the final three months of 2023, handily beating forecasts, helped by strong private-sector investment and a pickup in services spending.
Chart 3: MSCI AC Asia ex Japan Index¹
For the month ending 29 February 2024

For the year ending 29 February 2024
INDIA

CHINA
SOUTH KOREA
PHILIPPINESTAIWANHONG KONG
INDONESIA
INDIA
MALAYSIASINGAPORE
THAILANDMSCI AC Asia ex JapanTAIWAN
SOUTH KOREA
PHILIPPINESINDONESIA
MALAYSIASINGAPORE
THAILANDCHINA
HONG KONG
MSCI AC Asia ex JP
0%

10%

20%

-30%-20%-10% 0% 10% 20% 30% 40% 50%

Source: Bloomberg, 29 February 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 view
Focus on attractively-valued names with positive fundamental changes and strong sustainable returns
Despite the recent stronger economic data in the US, we continue to expect the Federal Reserve to begin cutting
rates this year. With excess savings nearly spent and fiscal thrust turning to drag, we expect the current tight monetaryenvironment resulting in further disinflationary pressure. The resultant weaker US dollar and looser liquidity
environment would be a boon for Asia, which still has plenty of room for rate cuts. The question, however, remains
whether China is able to engineer a soft landing for its housing sector and resolve the issue of uncompleted housing
units. Whilst India has had decent returns, growth is keeping pace as its structural growth continues unabated. We
remain steadfast in our bottom-up led investment philosophy and process, focusing on attractively-valued
companies with positive fundamental changes and strong sustainable returns.

YOUR GOALS, OUR COMMITMENT.

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MONTHLY INSIGHTS: ASIAN EQUITY (FEBRUARY 2024)

Prefer companies in the exporter and healthcare space due to a lack of visibility in the domestic economy
In China, we expect only a modest wave of counter-cyclical measures in the next few months. Despite investors’
concerns that the country’s deflationary pressure could become more entrenched, policymakers have been reluctant
to act with any real urgency because headline growth in China is still within acceptable range. However, the risk isincreasing that they could be behind the curve in arresting the decline in broader confidence in the economy. Thatsaid, with valuations in extreme oversold territory, there could be some short-term rebound. However, for the rally to
be more sustainable, we are monitoring for a few drivers, such as supply-side measures that can resolve China’s main
housing issues. Significant fiscal stimulus and changes in concerns about deflationary could also help turnaround
sentiment. Longer term, there needs to be reforms in the local government and state-owned enterprises space. Dueto the lack of visibility in the domestic economy, there is a preference for companies in the exporter and healthcare
space, where there is less cyclicality and more idiosyncratic bottom-up alpha drivers.
Continue to favour Indian companies exposed to the improving domestic infrastructure
India is on the opposite end of the spectrum, with sentiment positive all around. Investments in the country’s
unsatisfactory infrastructure has increased in recent years and is now paving the way for its manufacturing share of
GDP to ramp up over the next few years. Concomitantly, its new economy space is also thriving as a result of the rapid
penetration of cheap smartphones and internet, giving rise to fast-growing online platforms. To that end, we continue
to favour companies exposed to the improving domestic infrastructure as well as online consolidators. ASEAN andIndonesia also enjoy similar dynamics but to a smaller extent. The good news in Indonesia is that following the latest
election victory for Prabowo, we can expect the pro-growth reform policies during the Jokowi era to continue under
the new regime.
The tech-centric markets of Taiwan and South Korea continue to ride the wave of structural AI demand while the techcycle broadens out on the back of the nascent android and PC replacement cycles. South Korea, in particular, has an
extra growth driver as the government attempts to follow Japan’s example of improving corporate governance inorder to drive the rerating of cheaply-valued conglomerates.
Chart 4: MSCI AC Asia ex Japan price-to-earnings
30

MSCI AC Asia ex Japan Price-to-Earnings

Average P/E- 1 sd+ 1 sd

25
20
15
10
5
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Source: Bloomberg, 29 February 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, 29 February 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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4MONTHLY INSIGHTS: ASIAN EQUITY (FEBRUARY 2024)

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