By Zoe Kan

Key points

  • We advocate diversified exposure to Asia that focuses on companies that can continue to pay dividends throughout periods of macroeconomic uncertainty.
  • On a thematic level, we believe artificial intelligence (AI), or more specifically companies supplying the hardware for AI, present interesting opportunities.

Over the last decade, a top-down view on Asia has driven investors to have increasing exposure to China, which has become a larger, dominating part of the region’s benchmark indices. But the tide has turned, and we are in a new regime for both interest rates and the makeup of Asia’s growth dynamic. Now it is not so much about making the right top-down asset-allocation calls at country level as about the type of strategy used to access the region.

Looking to the year ahead, we think the long-term structural outlook for China is poor, with the property market still unwinding, unfavourable demographics and rising youth unemployment. This view has been reflected in the levels of foreign direct investment (FDI) into China. In Q2 2023, the country saw its lowest quarterly investment since 1998,1 and in Q3 2023, FDI turned negative with outflows exceeding inflows.2 There could be more fiscal stimulus measures on the horizon, but for now it seems policymakers are taking incremental steps that are unlikely to make a significant difference.

As such, we think it is important to have diversified exposure to Asia that focuses on companies that can continue to pay dividends throughout periods of macroeconomic uncertainty. However, in the new interest-rate environment, with pressures on balance sheets, increased working capital requirements and supply-chain diversification issues, we think it is important to be selective within any dividend-focused approach.

In terms of countries, India and Indonesia have both made great strides in reforming land, labour and infrastructure, and hence FDI is increasing in both markets, along with efforts to bring manufacturing onshore. It is difficult to disintermediate China from the supply chain considering its huge manufacturing clout on the global stage, but we believe India offers significant potential given its long-term demographics, strong consumption and household income growth, as well as growing levels of urbanisation.

The biggest risk to the Asian region is geopolitics, both from within and externally, and 2024 is a big election cycle around the world. From an absolute risk perspective, the situation between China and Taiwan remains a key uncertainty. Given the potential repercussions of a conflict, however, it is in everyone’s interest to remain pragmatic. Investment strategies that limit exposure to China also run the risk of relative underperformance against the benchmark should policymakers in China implement some kind of ‘bazooka’ stimulus and its economy starts to thrive.

On a thematic level, artificial intelligence (AI), or more specifically companies supplying the hardware for AI, present interesting opportunities, in our view. Other companies, such as integrated circuit designers, have cash-generative business models, while IT services companies, particularly in India, have capital-light business models, meaning greater ability to pay dividends from profits.

Elsewhere, we see Asia’s ageing populations being supportive for income strategies because, as people grow older, there is a higher need for income to fund them in retirement.

Overall, as we look to the year ahead, we see companies in Asia that have strong balance sheets and generate cash to pay dividends as presenting opportunities – those with business models that we believe are most likely to be fit for the future, with good moats surrounding their businesses. We also emphasise the key role dividends play in the total return for any investors in Asia, which is harnessed in an income strategy.


1          Bloomberg. China’s Foreign Investment Gauge Declines to 25-Year Low. 7 August 2023

2          Nikkei Asia. Foreign investment in China turns negative for first time. 4 November 2023


Zoe Kan

Zoe Kan

Portfolio manager, emerging markets and Asia equities team


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