Yoojeong Oh, investment director at abrdn, an investment manager, shares her insights on the outlook for Asian equities in 2024 and outlines her top stock picks.

Yoojeong Oh, investment director of the abrdn Asian Income Fund (AAIF), is positive on the outlook for Asian equities in 2024, particularly markets in Taiwan, Singapore, Australia, and South Korea, driven by digitalisation, high tech firms and a strong focus on artificial intelligence (AI). But she does see short-term "noise" and volatility ahead of the US election in November.

This week, Oh highlighted that Asian equity markets performed strongly in June, outperforming most developed markets in Europe and the US. Sentiment was helped by better than-expected corporate earnings.

The best-performing markets were India, Taiwan and Korea. India continued its good run despite initial volatility, after a surprising election outcome saw the ruling Bharatiya Janata Party (BJP) fail to secure a single-party majority. However, the market recovered quickly after the BJP, led by Prime Minister Narendra Modi, formed a coalition government with its key allies. BJP ministers retained most of their key ministries in the new cabinet, with Modi taking the oath as prime minister for a third term. Meanwhile, markets in Taiwan and Korea remained supported by continued strength in the technology sector, alongside AI-driven optimism.

On the other side, Hong Kong was the weakest market, amid weak housing activity and lacklustre domestic retail sales. Mainland Chinese stocks also eased slightly due to mixed economic data releases, a dial down of expectations of the significant policy stimulus to be announced at the Third Plenum in July, and the possibility of further US tariffs and sanctions.

abrdn Asian Income Fund (AAIF)
Oh manages the AAIF, which has outperformed the index, and aims to grow its dividends over time. In 2023, the dividend per ordinary share increased by 17.5 per cent, from 10 pence to 11.75p, providing a dividend yield of 5.6 per cent at the end of the year. The net value added (NAV) total return of 2.5 per cent for the year was ahead of the index, which increased by 1.6 per cent on a total return basis.

Oh believes that the outlook is bright due to the broad-based growth across Asia and the strength of the companies in the portfolio. The turnaround in the IT and semiconductor cycle, green transition and nearshoring as a result of geopolitics also benefits companies and countries in Asia.

After US tech stocks suffered a major setback this week, Mark Haefele, chief investment officer at UBS Global Wealth Management, also believes that investors should look beyond the US for ways of capturing AI growth, including in China’s tech monoliths. The shares of US tech multinational Alphabet fell 5 per cent even though Google's parent company delivered better-than-expected profits, because analysts feared that rising AI investments and other spending could eat into earnings. Nevertheless, Haefele believes that the market potential of AI is vast, and he expects it to be a key driver of equity market returns over the coming years.

Oh is underweight in China and India due to its lesser focus on dividends, preferring markets in Taiwan, Singapore, Australia, and South Korea. Top 10 holdings include Taiwan Semiconductor Manufacturing Company (TSMC), the fund’s largest holding at 9.20 per cent. “Twenty per cent of the fund is also invested in small caps, a lot in Taiwan, including Sunonwealth Electric Machine,” she told this news service in an interview. The firm designs and supplies a variety of thermal fans, as well as cooling solutions. She also invests in mobile phone operator Taiwan Mobile.   

Another top 10 holding is Korea’s Samsung Electronics, the largest global producer of DRAM chips which has benefited from the price increase of DRAM and NAND flash memory chips, driven by demand for generative AI. She has also initiated a position in Korea’s SK Hynix which is a pure-play memory semiconductor company specialising in DRAM and NAND flash memory chips. She views it as a beneficiary of the rapid growth of 5G smartphones and structural demand for servers. In addition, SK Hynix is benefiting from growing demand for high bandwidth memory for AI processing, such as machine learning and neural network AI.

Other top holdings include Singapore’s United Overseas Bank and Oversea-Chinese Bank. Oh highlighted how Singapore is a small country with a good growth story. Holdings also include India’s Power Grid, an electric power transmission company, which aims to reach net zero by 2047.

Oh emphasised the investment opportunities in Australia’s mining companies and banks, saying it is a high-yielding market. She invests in Australia’s BHP, a mining company, as well as Commonwealth Bank of Australia (CBA). Chinese multinational tech firm Tencent is also a top 10 holding.   

Other wealth managers
Other wealth managers are also positive about Asian equities in 2024. “Asia remains the most important growth engine of the global economy with projected GDP growth and earnings' growth for Asia ex-Japan in 2024 at 4.6 per cent and 23 per cent, respectively, well above the global peers,” Cheuk Wan Fan, chief investment officer, Asia at HSBC Global Private Banking, said recently. Fan holds an overweight view on equities in Japan, India, and South Korea, where she sees the best opportunities for tapping into Asia’s structural growth themes. Nevertheless, she stays neutral on Hong Kong and mainland China equities. Swiss private bank Julius Baer is also optimistic about the outlook for India, Taiwan and South Korea, saying that they expect funds to keep flowing into these countries. See more commentary here and here.