This region is poised to outperform. Here's where you should be looking

The Asian investment landscape is undergoing a transformation. With global policy shifts, technological innovation, and structural societal changes in major economies like China, Asia presents a compelling case for investors looking for long-term growth outside of Australia and the U.S. I had an in-depth discussion with Andrew Swan, Head of Asia Equities ex-Japan at Man Group, about the forces driving this change and why the time is ripe for investors. 

A summary of the key points of the conversation are below, but for the full experience, watch the video.

Please note this video was filmed March 20, 2025.

Navigating the impact of US policy in Asia

While tariffs have been a focal point of President Trump’s administration so far, the greater challenge is the unpredictability of U.S. policy. As Andrew Swan explains:

"Rather than concern on tariffs, it's the uncertainty and volatility around policy decisions that are pausing confidence, particularly in developed markets. That uncertainty is impacting demand in the U.S., which, as a major trading partner, may flow through to Asia."

This volatility presents both risks and opportunities. Given this is the sophomore era of Trump’s presidency, in some ways, governments and corporations have anticipated these policies to a degree and have been preparing for such challenges accordingly. How those policies play out in major markets like China is yet to be seen over the coming weeks and months.

Macroeconomic trends: Interest rates and currency movements

Many Asian economies have had to align their monetary policy with the US Federal Reserve to avoid currency depreciation and capital flight. However, as the Fed begins cutting rates, the tide may be turning in favour of Asian markets. Swan highlights:

“We are at a very important inflexion point here…maybe there's more rate cuts to come that will support the region. And we haven't had that tailwind for a while.”

What can be seen in the chart below is that a strong U.S. dollar is historically correlated with Asian market underperformance. But what we are now seeing now, Swan points out, is a weak dollar emerging, which may be surprising to some people after the US election. And that's why the outlook for the region's for profit growth is improving - with a weak dollar, it allows local central banks to ease monetary policy, stimulating economic growth and corporate profitability.

China’s economic shift: From investment to consumption

China’s economy has stabilised and in what could be considered a critical long-term shift in the region, is moving from an investment-led growth model to a demand-driven, consumer-focused economy. The Chinese government is emphasising policies that enhance social safety nets, including focusing on elderly, childcare, pensions, and the insurance market. These are all part of that social safety net that the government is now looking to try and address; i.e. improving the quality and quantity of services which could unlock a significant portion of household savings for consumption.

"The government is moving towards a policy focused on the consumer and demand-side economy. This is not just short-term stimulus; it's a long-term shift in how China grows," says Swan.

This transition presents significant investment opportunities, particularly in consumer goods, healthcare, and financial services. Equity markets are expected to benefit as corporate profitability improves, driven by rising domestic demand and policy support.

Beyond China: Other attractive markets in Asia

While China remains a focal point, other Asian markets present compelling opportunities. Indonesia and the Philippines stand out, especially as they are expected to benefit from U.S. rate cuts. Swan notes:

"Indonesia's having a tough time due to political concerns, but as the Fed cuts rates and the economy reflates, that market looks very attractive."

India, too, is coming back into favour after a period of high expectations and stretched valuations. With economic growth normalising and earnings expectations adjusting downward, Indian equities are becoming attractive again for long-term investors. 

AI’s next growth phase

Asia’s tech sector is at the heart of global innovation, particularly in semiconductors and AI applications. The first phase of AI adoption primarily benefited semiconductor companies, but the next wave is set to drive an upgrade cycle across consumer devices. Swan highlights: "The next phase is the application of AI into consumer devices, driving a new upgrade cycle. We are starting to see signs that this could be a significant growth driver."

"Normally you just replace your phone because you've dropped it, as opposed to being attracted to something that looks cool and fun. I think that this is the year where we get motivated to upgrade phones, tablets, iPads, even PCs potentially as AI moves into these devices."

So - why invest in Asia now?

For the past decade, Asian markets have underperformed due to sluggish corporate profit growth and strong developed-market equity returns. However, multiple factors are now aligning in Asia’s favour:

• China’s economic pivot is driving a shift from investment to consumption, which could sustainably boost corporate profitability.
• The weakening U.S. dollar is providing a tailwind for Asian markets by easing financial conditions.
• The tech cycle is entering a new phase, with AI driving fresh demand across various industries.
• Monetary policy shifts are creating an environment where central banks in the region can cut rates, further stimulating growth.

“We are at a very important point in time. Most investors are under or uninvested in Asia, but the setup for growth is improving. Now is the time to seriously consider allocating capital to the region," Swan concludes.

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