KUALA LUMPUR (Jan 18): Asian equities are poised to spring back to life this year as investment money is expected to flow back to Asia attracted by the region's strong earnings cycle, weaker US dollar and the prospects of China’s full reopening.

In 2022, a combination of hyperinflation, central banks' relentless tightening cycle — particularly the US Federal Reserve — and the geopolitical tension between Russia and Ukraine dragged Asian equities' performance.

However, in a reversal of trend driven by improving macros, Asian equities appear to be “investable” that warrants a larger share in asset allocation this year, said Sundeep Bihani, portfolio manager at Eastspring Investments, in a media briefing on Wednesday.

“Asian equities has been an unloved asset class among global asset allocators over the past five to seven years, and that has created an environment of under positioning. Secondly, cheap valuation which has created or expanded the opportunity to what we see today,” said Sundeep.

Although he did not discount the challenges that abound despite the optimism, investors are encouraged to take positioning in bright spots where Asian companies have improved efficiency and capability, added Sundeep.

According to Chief Investment Officer at Eastspring Investments Bill Maldonado, new growth drivers have emerged following the Asian region’s progress.

He said for one, China’s exponential growth in electronic manufacturing services and electric vehicles (EV) are identified as high growth areas as stocks in this sector are expected to draw investors.

“There will be opportunities for investors as companies try to align themselves to their governments’ net zero targets. China was the world’s largest producer of EV batteries in 2021, accounting for 79% of global manufacturing capacity. China also manufactures 60% of all the world’s electric cars and has a near monopoly in solar panel manufacturing,” he said in a report. 

In response to the growing demand in EV battery materials, Indonesia is actively leveraging its rich resource base to develop an EV supply chain ecosystem.

“There are currently 138 smelters (mostly nickel) and about six industrial parks under development. These initiatives have the potential to materially revamp Indonesia’s external trade landscape in the coming years,” Eastsprings 2023 outlook report highlighted.

Meanwhile Malaysia’s vibrant automated test equipment and outsourced assembly and test industry that are designed to detect abnormalities in production lines, is another growth area worth keeping in investors' radar, the report noted.

Meanwhile, Thailand’s economy continues to benefit from the resumption in international travel and tourism.

Sundeep also added that the banking sector is another area that excites potential Asian equities investors as the historic interest rate hikes made banks' valuation attractive.

“As inflation in Asia is well balanced, companies can withstand rate hikes and still be good on the asset quality front. The higher interest rate also led to positive earnings for the banks,” he added.

Michelle Qi, Head of Equities, China, said the potential full reopening of the republic is likely to catapult the services and industrial sector that will benefit from increased consumer consumption.

“Coming up is the CNY (Chinese New Year) holiday period and the passenger traffic index is expected to rebound strongly. We also start to increase portfolio weights in consumer staples like food and beverages (F&B). Hopefully a strong rebound in consumption is the start of the post-covid recovery story,” said Qi in the briefing.

She said the rebound of the consumer services in the post-Covid-19 scenario will be fuelled by better employment and household income.

In the fourth quarter of 2022, the Chinese government had announced several measures to help alleviate the liquidity pressure within the property sector.

Beijing allocated RMB250 billion of financing to support the private developers while the People’s Bank of China and the China Banking and Insurance Regulatory Commission issued a “16-point plan” regarding the delivery of completed units, refinancing and risk management.

“We expect the Chinese government to launch more pro-property growth initiatives,” added Qi.