Asia equity markets have had a bumpy ride in 2022, but there are some outliers such as Indonesia and India which have outperformed regional peers. While current performance is poor, Nikko Asset Management believes Asian markets are poised to outperform with the region set to play an even bigger part in the global economy.

“Asia is in prime position to assume the role of the world’s consumption growth engine, as Asian consumers are expected to account for half of global consumption growth over the near future,” writes Nikko AM.

Asia will benefit from the rising population and the well-developed capital markets in the region. Global agencies have already predicted that Asian economies will outperform developed peers in GDP growth. Additionally, the rising wealth of Asians is likely to contribute to changing consumption patterns.

The investment management firm says that while China is a key driver for global economic growth, India and Taiwan’s equity markets have outperformed China thanks to exceptionally well-managed companies.

Nikko AM sees some key drivers for Asia’s future growth, such as the move to net zero which is central to the region, and the low impact of inflation on Asian economies. “Despite such upward revisions (by ADB), inflationary pressures in developing Asia are expected to remain less severe than their global peers. At the bottom line, the inflation narrative in advanced economies – including the US and the Eurozone – does not quite fit Asia,” as per Nikko AM.

Some other factors are the evolving ESG guidelines and the rising digitalization of the world, for which Asia is the main frontier.

While other economies in the region are attracting investor interest, China is still the central theme when it comes to Asia equity investments. The focus is now on China’s policy moves. “We believe that investors with the right research on the ground in China and with a methodical process that tries to understand Chinese policy developments stand to benefit from investing in Chinese A- and H-shares,” opines Nikko AM.

The overall outlook for Asia equity is positive but there are still some risks such as the Russia-Ukraine war and other regional geopolitical risks. The investment management firm says that investors must anticipate change and convert challenges into opportunities.

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