By Zoe Kan

Key points

  • China’s reopening story continues to bolster the region.
  • The waning of US-dollar strength and weaker commodity prices should provide Asian economies with greater flexibility.
  • We are positive on the longer-term prospects for Indonesia and Singapore.

Asia, like everywhere else, endured a tough 2022 as inflation and interest rates ratcheted up across the world. But it was particularly hurt by the strong US dollar, which weighed on monetary policy in the region. Meanwhile, China’s rolling lockdowns and legacy Covid restrictions proved a powerful headwind for markets.

The outlook for the rest of 2023 is uncertain as the impact of higher interest rates has yet to be digested, and quite where US ‘terminal’ rates end up remains to be seen, especially in light of recent volatility within the US and European financial sector. Nonetheless, we are relatively sanguine about Asia’s ability to weather the storm. And our focus has moved to the extent to which headwinds might be easing. China’s reopening story continues to bolster the region. The waning of US-dollar strength and weaker commodity prices should provide Asian economies with greater flexibility.

Business models that are fit for the future

We search for companies with business models that are fit for the future – with good moats surrounding their businesses. We target companies that operate in well-structured industries where they have a genuine competitive edge, strong balance sheets to get them through tough times, and supportive growth tailwinds backed by thematic support.

Beyond China

At the country level, diversity is key. Investors should not just buy Asia for Asia’s sake or for yield’s sake. If they do, they can quickly find themselves exposed to state-owned enterprises such as Chinese banks. It is important to be discerning.

The Asian Income strategy’s long-held underweight in China means it has been able to sit out much of the first-hand ramifications of China’s geopolitics and avoid some of the dubious governance practices that seem to be rife there.

Under the radar – Indonesia and Singapore

We are positive on the longer-term prospects for Indonesia, which boasts a strong demographic profile and has been a beneficiary of reshoring and growing foreign direct investment. Indeed, several companies within the electric-vehicle supply chain have set up manufacturing and production in Indonesia.  

For example, we have found opportunities within Indonesia’s banking sector. The macroeconomic dynamics in Indonesia are attractive and supportive of loan growth. We believe that some of the banks with strong competitive advantages should be well positioned to continue to generate high returns after several years of restructuring, investment in technology and improved risk-management practices.

Singapore is another favoured area, boasting strong governance and attractive dividend yields, while its companies benefit from solid inter-regional trade, most notably with South-East Asian economies.

In particular, we have identified an exchange operator which we think is well positioned to benefit from the volatile macroeconomic environment as well as increased trading and hedging activity. Such activities generate high levels of free cash flow and can deliver reliable dividends, a particularly attractive characteristic given the uncertain economic environment.


Zoe Kan

Zoe Kan

Portfolio manager, emerging markets and Asia equities team


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