Asia Insights
Key Highlights
- As the fastest growing economic region, Asia faces the dual challenge of balancing significant development needs while decarbonising
- China and India, the world’s most populous countries, now account for roughly 40 per cent of global greenhouse gas emissions from fuel combustion
- The scale of transformation needed for Asia’s net-zero transition means substantial opportunity for job creation, innovation, and investment, but also poses regulatory and competitive risks for some companies
Asia’s energy transition and its role in tackling climate change, spurring growth and investment opportunities
Climate change is increasingly impacting societies and economies globally. Asia is particularly vulnerable due to its geography and the structure of its economies. Governments in the region, which have a vital role to play in addressing the problem due to Asia’s growing economic weight, are stepping up commitments to combat climate change. Asia’s energy transition could prove a major growth driver, potentially providing a compelling opportunity for investors, with private capital set to play a significant role in facilitating change. Conversely, it may pose a competitive risk for those companies that fail to adapt.
Asian equities – return disparities suggest an active approach is prudent
Asian markets experienced a significant disparity in returns last year - India, Japan, Taiwan, and South Korea registered double-digit gains, while China experienced a sharp setback. The subsequent increase in valuation dispersion suggests an active approach should remain appropriate to capture opportunities in 2024. Overall, markets face challenges in the form of an opaque global economic outlook, geopolitical uncertainties, and the current tight external financing environment. More positively, valuations are generally below long-term averages, and earnings are stabilising.
Asia fixed income – potential for appealing premiums
The outlook for Asian fixed income appears promising, reflecting the prospect that interest rates globally have likely peaked, and the expected outperformance of Asian economies in terms of stronger growth and lower inflation. These conditions should provide greater flexibility for fiscal and monetary policy compared to the West and could limit potential credit defaults and downgrades. Challenges include the need to refinance loans secured during and after the pandemic at what are now significantly higher rates. However, access to lower-cost onshore debt, particularly in India and China, may mitigate these concerns. Overall, having weathered recent challenges, Asian fixed income offers potentially compelling opportunities.