Asian equities: Select opportunities amid mixed earnings outlook 

ASIAN equities have shown signs of stabilisation in the first quarter of 2023, with earnings forecasts bottoming. After the market’s strong ‘style rotation’ into value since 2021, the growth style is gaining ground. The corporate earnings outlook for 2023 is likely to be mixed across Asia – while the tech sector in Korea and Taiwan is expected to see double-digit earnings declines, as it struggles with weak demand in the first half of the year, double-digit earnings growth recovery is likely in China/Hong Kong due to the economic reopening and policy easing. In India and the Asean nations (Indonesia, Malaysia, Philippines, Singapore and Thailand), a continuation of decent-to-solid earnings is expected this year as a result of cyclical and structural drivers.

Despite the mixed earnings backdrop, the region’s macro picture shows particular promise, especially as some of the macro headwinds from 2022 are turning into tailwinds in 2023. Should the US Federal Reserve approach a pause in its most aggressive rate hike cycle, the potential peaking of the US dollar against Asian currencies could enable the region’s central banks to pause policy or at the least ease monetary tightening according to local conditions. Indeed, inflation across Asian countries has generally peaked and has started to surprise on the downside. March PMIs showed expansionary trends for large domestic demand economies like China, India, and Indonesia, while export-oriented economies including Taiwan, Korea, and Vietnam are indicating a contraction.

Distinctive factors create select opportunities

In addition, China’s decisive pivot to growth will likely continue to unfold over the course of the year with the property sector showing signs of recovery. We believe the positive impact on company fundamentals should be more pronounced in the second quarter of 2023, especially given the depressed earnings in the second quarter of 2022, which reflected Shanghai’s Covid outbreak.