Top trend of Asia in the new world order

Asia’s Corporate Governance Reform Winners

James Cheo, Chief Investment Officer for Southeast Asia and India at HSBC Global Private Banking and Wealth favours corporate governance reform winners in Japan, China and South Korea, which are cash-rich companies with low leverage and financial power to deploy cash to boost shareholders’ returns through increasing dividend payments, share buybacks and value-adding corporate actions. Asian governments and regulators are pushing for corporate reforms to boost shareholders’ returns and close the valuation gaps of their equity markets relative to the global peers.

“Japan provides an example of how improved corporate governance standards can contribute to a re-rating of the equity market. China’s State Council recently announced the ‘Nine-Point Guideline’ which stresses the importance of high dividends and share buybacks. In South Korea, regulators have announced the Corporate Value-Up Programme which aims at improving return on equity and narrowing the ‘Korea discount’ versus its global peers,” notes Cheo.

Reshaping Asia’s Supply Chain

“We look for winners of the accelerating supply chain reconfiguration and the friend-shoring trend amid de-globalisation. This has resulted in rapid trade integration in Asia. We favour high-end manufacturing leaders in Japan, South Korea and Taiwan given their pivotal roles in the global semiconductor supply chains. In ASEAN, Singapore, Malaysia and Vietnam are strengthening their leadership positions in the electronics industry,” says Cheo.

“Electronics and EV manufacturers from North Asia are ramping up production capacity in ASEAN to expand market shares. ASEAN represents a big new market and a low-cost production base for Chinese companies facing slower growth at home. We favour companies in India and ASEAN that gain from supply chain reorientation under the ‘China1’ strategy of multinational and Asian corporations,“ highlight Cheo.

Rise of India and ASEAN

“This theme captures promising secular growth opportunities from the young demographics, rising middle-class consumers, robust FDI and domestic investment spending, technological innovation and green transformation. India’s services export growth has stayed strong with the rapid rise of the Global Capability Centres (GCCs) set up by multinational companies. India now commands over 50% of the global GCC market,” says Cheo.

Capturing Peaking Asian Yields

“For income opportunities, we focus on locking in multi-year high yields from Asian IG bonds with 5-7 years duration. With continued disinflation and the Fed’s rate cuts likely to start in September, we expect many Asian central banks to start cutting rates in H2 2024. We favour Japanese and Korean financials and IG corporate bonds, Indian local currency bonds, Indonesian quasi-sovereign IGs, Macau gaming and Chinese TMT credits,” highlights Cheo.