2017 has been a good year for Asian equities so far, rising 36% and outperforming the rest of the world.1 The strong performance has been supported by steady economic conditions and robust corporate earnings. Yet still, Asia is trading at its lowest price-to-book ratio relative to the S&P 500 Index in 15 years.2
So where do we go from here? Our view is that there are three positive fundamental structural drivers that can help Asian markets remain strong in 2018:
• Stability on various fronts, including economic growth and policy decisions
• Good opportunities driven by earnings, liquidity and valuations
• A reduction in risk
Stable growth is in the forecast
Asia’s headline economic growth is expected to steadily adjust from the recent annual growth rate of 6.0% to 5.8% in 2018.3
In China specifically, we expect growth to moderate, but to remain on track to deliver the government target of 6.5% growth, which is a decent expansion compared to other major economies.4 Investments and exports are expected to soften, while domestic consumption will continue to be the key driver in our view. Income growth remains resilient, providing support to consumption.
The macroeconomic environment in India is also favourable, with manageable inflation and a stable growth outlook. The Indian economy has been rebooted under Prime Minister Narendra Modi’s bold reforms. As the long-term benefits start kicking in, we expect to see improving fiscal balance, sustainable growth in private consumption, and better corporate earnings.
Elsewhere in Asia, retail sales growth is expected to remain robust in South Korea, while ASEAN economies (Association of Southeast Asian Nations) will likely see ongoing recovery in investments and exports.
To continue reading, click Download PDF
1Source: Bloomberg L.P. Based on returns for the MSCI Asia ex Japan Net
Total Return Index, expressed in US dollar terms, as of Oct. 25, 2017.
2Source: Bloomberg L.P. Data as of Oct. 9, 2017.
3Source: Bloomberg L.P. Recent level of GDP refers to the Asia ex-Japan
year-on-year GDP growth rate as of June 30, 2017. 2018 expected GDP
growth rate refers to Bloomberg consensus estimate as of Sept. 26, 2017.
4Source: Xinhuanet. The Chinese government set the 2017 growth target of
around 6.5% during the annual National People’s Congress (NPC) held on
March 5, 2017.