Democracies have always been considered the more stable places to invest, but last year’s turmoil challenged this notion, according to Ian Rees, head of multi-manager at Premier Miton Investors, who was speaking at the Funds Europe – Asia Investing Roundtable recently.
The discussion brought together fund selectors to discuss the challenges and opportunities in Asia’s markets. They began by reflecting on 2024, a year when an unprecedented number of general elections took place, including the re-election of Donald Trump.
Reflecting on the political turbulence of the past year surrounding the elections, Ian Rees noted that “incumbents took a bloody nose” across many democracies, leading to elements of instability. He contrasted this with China’s command economy, which, despite its autocratic nature, offers political stability.
“The assumption that democracy always offers greater investment security was challenged last year,” Rees said, citing volatility in European countries such as France and Germany, and concerns over the unpredictability of Trump’s policies.
Lena Tsymbaluk , fund analyst at Morningstar, identified trade tariffs as one of the major risks associated with Trump’s presidency. “His ‘America First’ approach suggests that Chinese exporters will bear the brunt of high tariffs,” Lena Tsymbaluk said. However, China has adapted, boosting its domestic economy and implementing subsidies to counteract these measures. “This time, China believes it understands Trump’s tactics better,” she added, pointing to a potentially softer approach to trade negotiations from both sides. From Tsymbaluk’s observation, some active managers are positioning their portfolios to put a greater focus on China’s growing domestic economy.
“Trump, being a businessman, doesn’t seem to be interested in the trade war now, so he would try to negotiate. Hopefully, there will be a softer approach from both sides to the tariffs,” she added.
Wide range of outcomes
Francis Chua, multi-asset fund manager at Legal & General Investment Management, described Q4’s market reaction as a “game of two halves”, where the initial stability in the run-up to the US election gave way to higher volatility.
“We still don’t know if Trump’s tariffs are a strategic move or simply a tactical play to gain negotiation leverage,” said Chua, highlighting the wide range of possible economic outcomes.
Chua said asset pricing and market valuations are set for volatility, particularly in bond yields and when linked with inflation expectations. He noted that equity markets have also shown signs of dispersion, with Europe standing out as a relatively strong performer so far this year. Drawing parallels to Trump’s first term in office, Chua recalled how the President introduced tariffs but later scaled them back once his negotiation objectives were met.
Nick Oakden, business development director at Caceis Investor Services, highlighted that long-term growth projections for Asia remain robust, citing estimates that global assets under management could reach $27 trillion by 2035. He also pointed to demographic trends, emphasising that population growth in Asia is expected to account for nearly 50% of the world’s total—a factor that presents major opportunities for market actors.
A key shift in the conversation was the move to a T+1 settlement cycle in Asian markets. This change brings it in line with developments in other major financial hubs, Oakden pointed out, citing India’s example. Asia is following the US and eventually Europe’s lead in adopting shorter settlement cycles, a move aimed at speeding up transactions, improving liquidity, and making markets more efficient.
T+1 is finally pulling European markets out of the doldrums, and it’ll be interesting to see how this plays out, the panellists commented, adding that a faster settlement system could help capital move more smoothly and with lower risks, connecting Asia even more strongly with global financial flows.
Asset allocation in Asian markets
Are fund managers and fund selectors adjusting their strategies to reflect these geopolitical and economic dynamics? Francis Chua laid stress on the importance of closely monitoring fund managers, particularly in volatile markets like Asia.
“It’s all about understanding what your manager is doing,” he explained. A strong track record isn’t enough; investors need to know how a manager is positioned and whether their strategy aligns with market conditions.
Chua also noted that some Asia managers working within LGIM’s model portfolios have defensive qualities, but 2024 performance wasn’t necessarily defined by the defensive trait alone. “Last year was a mixed bag—some funds did well, some didn’t, but not always because of their defensive positioning,” he said. The key, according to Chua, is to dig deeper into a manager’s decision-making. If a downturn is expected, some investors may rotate into more defensive managers, but for LGIM, the approach is more nuanced. “Rather than making knee-jerk reactions, our first step is always to analyse what our managers are holding, and their country exposures,” he said. This helps identify gaps and ensure balanced positioning across the portfolio.
A trend for emerging markets funds (ex-China) from last year could gain momentum, said Tsymbaluk. She highlighted that some fund managers were tilting towards investment opportunities in Asian countries with strong domestic economies. This is partly because exporters have been affected partly by trade barriers and geopolitical tensions.
“Manufacturers that rely heavily on exports are feeling the strain, so there’s a natural pivot toward domestic markets,” she explained.
Chua provided insights into how his firm navigates these regional shifts. “The approach within our multi-asset model portfolios is a blend of passive index exposure and active management,” he said. The active managers employed would focus on country and sector selection, while factor models provide an additional layer of analysis. However, Chua acknowledged that applying factor strategies – for example, either growth or momentum factors – across diverse regions can be challenging. “When a manager covers multiple regions, the factor view isn’t always clear,” he added.
China remains a major force in Asian indices, accounting for nearly 50% of the index in some cases. “When we look at our active managers, their exposure to China varies significantly,” Chua said. This underscores the importance of balancing regional risks and opportunities, particularly as geopolitical and economic shifts continue to reshape the investment landscape.
Oakden pointed out the role of fund structures in facilitating Asian investments, particularly Luxembourg-based Ucits funds, which provide regulated access for European investors seeking exposure to Asian markets. “Luxembourg structures remain a widely accepted way for investors to tap into Asia’s growth story,” Oakden said.
China: Too risky, or an opportunity?
China’s investment outlook remains contentious, according to the mixed views of the panellists. Some argue that its risks outweigh the potential rewards, while others believe that dismissing China entirely would mean missing significant growth opportunities.
According to Chua, as China’s economic model shifts toward domestic consumption, this presents a long-term growth story.
“Despite its aging population, China’s ongoing wealth creation supports a strong consumer economy,” he said.
Rees acknowledged China’s challenges but also shed light on its resilience. “China’s demographic profile is shifting, with an aging population similar to Japan’s. However, unlike Japan, China’s economic policies are still driving growth,” he explained.
Tsymbaluk added that the government is actively addressing these challenges, particularly in housing and family policies, to encourage higher birth rates.
A lot of frustration
As a part of the discussion, Rees acknowledged the ongoing investor caution due to market volatility and government interventions in capital markets.
“China has created a lot of frustration among investors,” he said. “When you’re looking at valuation metrics in the mid-20s for the US, versus single digits for China, the disconnect seems too great.”
Despite concerns about governance and policy risks, China remains the world’s second-largest economy and accounts for 20% of global GDP, implying China cannot be overlooked by investors.
“Whether or not you agree with China’s economic model, they have the tools to enact policy without the bureaucratic hurdles of democracies. When they set a growth target, they would be likely to achieve it,” he said.
Chua added that a long-term perspective means that investment in China depends on the time horizon. “If you’re looking at a ten-year outlook, taking a more diversified view could improve risk-return outcomes,” he said. However, in the short term, China’s economic concerns, weak retail participation in markets, and investor confidence remain major hurdles.
Chua also linked China’s troubled property market to broader economic challenges. “Property oversupply is leading to more discounted pricing, which is, in turn, exacerbating negative sentiment. The government’s efforts have so far focused on supply-side measures, but the real challenge is on the demand side—getting people to invest and spend with confidence. We’ve seen the government try to shore up confidence, but so far, it hasn’t translated into sustained market optimism.”
In agreement with Chua, Rees commented that while China has attempted to boost investor confidence through fiscal and monetary stimulus, these efforts have yet to yield significant results. “The coordination between the president and central bank to provide both fiscal and monetary stimulus in September was notable. However, we haven’t yet seen a real shift in sentiment.”
To sum up, while some asset managers saw potential improvements coming through in the Chinese market, others were willing to wait and watch, and yet, others thought staying close to the local market in China would be the best course of action.
India and other emerging markets
Tsymbaluk also pointed out that India stands to benefit from shifts in investment perspectives, particularly under the Trump administration. “Despite high valuations, India’s political landscape is seen as more stable, and it’s well-positioned to gain from supply chain realignment. It is also well-placed to benefit under Trump’s policies.”
She added that the Association of Southeast Asian Nations (Asean) countries are also likely to benefit, as companies look for alternatives to traditional manufacturing hubs.
Rees highlighted the diverse investment styles available in Asia, noting that while India’s strong growth narrative has driven market performance, investors should consider more than just the growth angle. “There’s a tendency to chase high-growth stories, but historically, quality investing in Asia has yielded strong returns as well,” he said.
According to Rees, India’s strong growth narrative, and its companies, are performing well. However, there’s more to it than just the growth narrative. Pointing to the value investment approach in Asian investment once championed by Angus Tulloch, a veteran Asia Pacific investor, Rees suggested that the value factor might be due for a resurgence as market rotations create new opportunities. “The Asian market, like many other markets, often swings between over-excitement and over-pessimism, and that’s where valuation divergences can create real opportunities,” he said. Balancing growth and value strategies could be key in navigating Asia’s evolving investment landscape.
Among Asian emerging markets, Vietnam has also emerged as a promising investment destination. According to Chua, “Vietnam’s growth story today resembles what Korea, Taiwan, and even China experienced in earlier decades”. Execution will be key to sustaining this momentum, he said.
Praising India’s “phenomenal growth trajectory”, Chua mentioned how India is now looking expensive in certain sectors, whereas parts of China look cheap. Under Prime Minister Narendra Modi, India has benefitted from a tailwind of funds exiting China and Russia. “It would be interesting to observe capital reallocation to and from the Indian market as and when geopolitical clouds move away.”
While LGIM maintains a neutral long term exposure for China, Premier Miton Investors has increased its Chinese exposures a little to “offset some of the rich valuations seen in India” and reap diversification benefits.
Megatrends shaping Asia’s future
Among the significant megatrends discussed in the Asian markets context, demographics and sustainability stood out.
Oakden, based on Caceis Investor Services’ experience, shared that investor interest in developing nations and emerging frontier markets is growing, especially in sustainable products, such as solar and renewable power. With Asia’s population projected to grow from 4.8 billion to 5.3 billion by 2050, Oakden pointed out that resource efficiency and innovation will be crucial. “There’s a lot of ingenuity happening — look at Singapore’s vertical and underground farming models. Companies are finding creative ways to tackle sustainability challenges. We’re seeing increasing interest in developing markets and impact-driven investments,” he said.
Highlighting sustainability and structural investment shifts, he also noted that rising elective vehicle sales are an indicator of Asia’s long-term growth potential in green technology. “We’re seeing real progress in sustainability, and it’s reshaping investment opportunities in the region,” Oakden said.
On the demographic front, Chua noted the contrast between aging economies like China, Korea, and Japan, and younger, faster-growing markets like India and Vietnam.
However, China’s “ongoing wealth creation” would help give a fillip to consumer demand, and gain precedence over its long-term demographic profile, according to Rees.
Tysmbaluk agreed, pointing to how the country is rebooting ways to address the demographic challenge by, for example, trying to encourage spending and create a solid middle class consumer base.
Japan’s structural changes
Rees shared that Japan’s corporate governance reforms are unlocking shareholder value, making it an attractive market for long-term investors. “Japan’s under-leveraged balance sheets and low valuations position it well for the future,” he said.
Rees said deep structural changes in Japan could unlock long-term value for investors. “This time, it’s not a false dawn. The transformation is real, actively driven by government policies and the Ministry of Finance,” he said. “Unlike many overleveraged global markets, Japan remains relatively underleveraged with low valuations, making it an attractive opportunity.”
Corporate balance sheets are improving, and companies are starting to return excess capital to investors.
“As corporate governance strengthens and efficiency improves, investors should see better returns,” Rees noted, adding that these reforms could outweigh Japan’s demographic challenges over the next decade.
Tsymbaluk echoed this sentiment, pointing out that Japan’s commitment to corporate governance reform has been a long-term effort. “There’s a clear policy focus on improving governance, and that presents a real opportunity for investors,” she said.
Volatility remains a constant, but for investors who can navigate it, Asia still presents compelling opportunities.
Participants
- Francis Chua, multi-asset fund manager, Legal & General Investment Management
- Nick Oakden, business development director, Caceis Investor Services
- Ian Rees, head of multi-manager, Premier Miton Investors
- Lena Tsymbaluk, fund analyst, Morningstar
