The news of a 0.5% rate cut was warmly received by Asian markets, which have outpaced global markets in the wake of the decision. The dollar had been weakening in expectation of a cut, boosting the region’s economies.

US monetary policy remains influential for Asian markets. While the region is becoming increasingly self-reliant and intra-Asian trade is increasing, we believe the US remains a key destination for Asian consumer goods and commodities. At the same time, loosening financial conditions in the US usually provides a tailwind for Asian currencies.

Typically, US rate cuts have favored a higher growth approach within Asian markets. Still, there are several reasons why a more income-focused approach may be appropriate in this cycle for those with a total return mindset.

Election volatility

In particular, the US election can still create waves for Asian markets. Democrats and Republicans are threatening to raise tariffs on imported goods, particularly from China. Under a second Trump presidency, those tariffs could extend across Asia. While this risk is well understood and reflected in the share price of Asian companies, it may continue to create volatility.

At the same time, there is a valuation argument for a different approach. As with many other countries, market leadership across Asian markets has been narrow. This has created opportunities and risks. It has left overvaluation in some areas and some markets looking unusually cheap. A broader range of options is now open to income investors across the region, but they must be carefully navigated.

The Chinese market is a good example. Despite slowing growth, the China story is not broken. Some renewed risk appetite and monetary easing from the Chinese central banks have led to a revival of the country’s financial markets. Even considering the recent rally, valuations for Chinese stocks still appear attractive, and there are now some Chinese companies offering some appealing yields, which is a feature that was otherwise absent in the past.

We see particular opportunities in Chinese banks and insurance groups, which are well-capitalized, pay attractive dividends, and are well-positioned to participate in the market recovery. In China, investors could potentially earn an attractive yield while also participating in the capital appreciation that would come with the China growth story.

Investing in quality markets

Even though there are more opportunities within China, the Chinese market and India’s distinct economic shifts create new and divergent opportunities. India and China are relatively low-yielding countries relative to Singapore and Australia, which have higher average yields.

Australia has always been an attractive income market because of the mature retail investor industry with well-established pension funds, which creates a steady demand for income compared to the emerging market in Asia. It is also a high-quality market with good standards of corporate governance. Australia’s economy has weathered the global economic slowdown with little disruption.

With global interest rates set to decline, a clear beneficiary will be the real estate sector, and Australian property companies are well positioned in this respect. They also fundamentally have high-quality portfolios and strong development pipelines, which will provide growth even if rate cuts get delayed. Furthermore, the banks have gone through a challenging period in the last year from a macroeconomic and competition perspective but have largely proven resilient through one of the most difficult times in their recent history. This speaks to the quality of their organizations and the strength of their franchises, which will allow them to sustain their dividends and provide investors with appealing total returns.

Finding domestic champions

While the outcome of the US election is uncertain, we continue to find opportunities in domestic Asian themes, which will continue regardless of who becomes president.

Favorable demographic trends in Emerging Asian markets, the impact of reshoring in South-East Asian economies, the growing premiumization of consumption, continued infrastructure development in developing economies, and decarbonization solutions are factors we believe remain appealing to investors.

Important information

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed, and actual events or results may differ materially.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

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