Asian stocks set to outperform

"We think there is good reason to have a constructive view of Asian stocks after several years of weak returns compared to the rest of the world's stock markets. Regional indices are trading at significant discounts to developed markets, particularly the US, and we believe this valuation gap will narrow as Asian corporate earnings return strongly in 2024,” explains Ian Hargreaves, manager of the Invesco Asian Equity Fund.

According to Hargreaves, Korean company profits in the semiconductor industry are particularly interesting to keep an eye on, while he sees the greatest opportunity for positive surprises in China and Thailand where expectations are low, especially in relation to India, which is the most expensive market in the region.

Indian banks in the spotlight

Despite the relatively high valuations that prevail in the Indian market, the manager believes that there is reason to be optimistic about the country and the profit growth of Indian companies. Above all, he sees opportunities in the banking sector where valuations are not as challenging.

“There are good reasons to be optimistic about India as they are in the early part of the credit cycle while the country seems to be in a sweet spot in terms of the macroeconomic situation. However, this is also reflected in the valuations.”

"We see the best opportunities among the private banks that do not have the same high valuations and thus better protection on the downside. The lending rate growth of Indian banks is strong, while concerns about their interest rate margins are no longer as prominent. We believe banks such as ICICI Bank and HDFC Bank are well-positioned to take advantage of a continued improving credit cycle in the country,” says Hargreaves.

Chinese shares attractively valued

According to the manager, the weak development for Chinese stocks has also opened up interesting opportunities.

“We are overweight China for two main reasons; we believe the valuations are attractive while expectations are low. This means that there are great opportunities for company profits to surprise on the upside. We are of course well aware of China's structural and geopolitical challenges, but at the same time believe that Chinese stocks may provide good returns over an investment horizon of three to five years."

Risk diversification key to success

The manager emphasizes that it is of the utmost importance to spread the risks in the region in order not to be too affected by macroeconomic headwinds.

“We try to ensure that our portfolios are diversified across sectors and regions to ensure that unanticipated macro events do not have too much of an impact on returns. Rather, returns should be determined by our exposure to themes and stocks where we have strong conviction and where we believe there is a beneficial asymmetry between return and risk. From this perspective, there are many interesting investments in the Asian markets today," concludes Hargreaves.