We think Asian markets have scope to outperform relative to other regions over the coming months, but it’s important to be very selective of sectors, companies and countries – and we remain bearish on China.
We would expect real interest rates to stay low as central banks cut rates even though inflation hasn't fallen sharply in many countries including the US. Inflation is less of a problem in Asia, so we think further rate cuts are warranted.
Lower rates tend to be good for income investors like us. We also have seen some of the region’s currencies strengthen against the US dollar, and this tends to be supportive for Asian equities. It is quite clearly a Trump administration policy to maintain a weaker dollar and to push the US Federal Reserve (Fed) toward lowering rates – despite above-target inflation.
We would expect to see more funds flow into Asia as investors reconsider American exceptionalism in financial markets. We think the region’s domestic economies and growth rates and the quality of companies stand out. Asia doesn't have the same debt and spending challenges as do the governments in Europe and the US.
Tech in Taiwan
When we look at sectors, we see some of the best opportunities for Asia equity investors in technology companies, where the valuations and dividend yields are attractive. There's a longer term structural growth story around AI and the demand for the products that these companies, many based in Taiwan, are selling to the US technology giants.
Taiwan’s US tech exports are rising, and where they are impacted by tariffs companies have so far been able to pass on costs. Taiwanese companies also are investing in production capacity in the US that will sidestep tariffs entirely.
We see gold mining stocks as an attractive way to gain exposure to gold at a time when money supply is rising and the Fed is likely to embark on a significant rate cutting cycle. It’s no surprise to us that foreign central banks now hold more gold than US Treasuries.
Defence spending
We’re not expecting geopolitical tensions to ease and so we think there's a case for maintaining exposure to the defence sector – we don’t think countries will reduce spending in this area.
Australia, Taiwan and Singapore top the list of countries where we see the best opportunities. We view them as among the world’s most attractive developed markets. Australia and Singapore have 10% tariffs on exports to the US, the lowest rates available.
We see Australia as a long-term success story, with one of the few stock markets that has kept pace with the US. We are optimistic due to the regular flows into local pension schemes, which deploy much of these assets into local equities, as well as the country’s abundance of well-managed, private-sector businesses.
Singapore recently celebrated its 60th birthday, and we see it as a remarkable place. On a per capita basis, Singapore is the fourth wealthiest nation in the world, and it is getting richer faster than any other nation. With a population of 6 million, it has an open but selective immigration policy, the world’s second busiest container port and fourth busiest airport, and it conducts close to 20% of the world’s energy and metals trade.
India risks
The only emerging market in the region we invest in is India. We have slightly reduced holdings recently due to elevated short-term risks. These include higher equity valuations, the increase in US tariffs from 25% to 50% and the government’s subsequent shift to build better relations with China and Russia.
We maintain zero holdings in mainland China, where we see a range of risks that include the one-party political system, an expanding trade war with the US as well as deflationary pressure and weakening demographics.
We recently sold our last holding in Indonesia, having become circumspect about the country’s prospects given a murkier domestic political scene and the lack of market catalysts. We have been neutral regarding the outlook for the South Korean market for some time.
Quality income
We do not identify ourselves as growth or value investors – we look for a combination of the two – companies that will expand their earnings and therefore be able to deliver growing dividend streams, companies that are reasonably priced, have a strong balance sheet and good governance. We describe these companies as offering quality income.
We remain relatively upbeat about the outlook for Asia equities, yet we think it makes sense to be selective and to build a portfolio of investments that has diversification and can be robust across a range of scenarios.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This is a marketing communication. This webpage is intended for investment professionals and is not for the use or benefit of other persons. This webpage is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Company or holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this webpage may be reproduced in any manner without the prior permission of JAM/JAMI.