Macro Insights: Leaning in on Emerging Asia Macro Insights: Leaning in on Emerging Asia Macro Insights: Leaning in on Emerging Asia

Macro Insights: Leaning in on Emerging Asia

Macro 4 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  Given our expectation of further pain in US equities, we believe it remains prudent to consider an optimum asset allocation. Exposure to Asia ex-Japan provides scope for long-term growth in a portfolio, despite the abundant risks faced by emerging Asian economies from tighter Fed policy, rising food and energy prices or the slowdown in China. We see pockets of opportunity in Indonesia, India and Vietnam, while Singapore remains a safe haven in choppy markets.

When thinking of asset allocation, most investors need to look at emerging Asia (EM Asia) for the potential returns it can provide. This is besides the fact that there are ample risks, including 1) the Fed is tightening (which makes EM Asia prone to capital outflows); 2) energy prices are rising (and most EM Asia countries are energy importers), 3) food prices are going through the roof (with food being a major chunk of the consumption baskets in Asia) and 4) China’s growth slowdown is likely to weigh on Asia through the trade and investment channels.

Still, we believe it is prudent to add exposure to select emerging Asian countries in a portfolio for long-term growth due to the following reasons:

  1. Asia’s post-pandemic recovery is picking up steam as borders reopen. Activity in the contact‐intensive services sector is likely to rebound quickly, lifting employment. These jobs tend to be in the low-to-middle income spectrum, so the bounce in activity will help ensure a broad‐based upturn in consumption.


  2. EM Asia remains relatively more resilient to Fed tightening this time. Sustained strength in US demand should keep demand for Asia’s exports high. Meanwhile, a solid FX reserves position across most of EM Asian countries also reduces the possible ripples through the markets channel.


  3. China’s flip-flop policy measures are keeping traders and investors cautious and prompting a look at other EMs.

We look at pockets of EM Asia that show potential despite the global economic and geopolitical pressures.


Singapore stocks are a safe-haven amid the choppy global markets, being up by nearly 2% year-to-date as compared to an over 15% decline in the S&P. Singapore’s macro conditions are relatively more robust with GDP growth set to decelerate, but still remain at above-trend levels as the reopening provides tailwinds. China’s slowdown remains a risk but we believe it will be offset by pent-up demand.

Key sectors: Digital transformation and renewables remain a key focus area in Singapore as it leads ASEAN in these transformational spaces. REITs also provide a shelter against inflation, especially with 4-5% dividend yields.


Vietnam has been seeing the benefits of manufacturing moving out of China with its favourable government policies to attract businesses. The reopening after the pandemic has also been brought back tourism and consumption growth. In addition, Vietnam is the only food exporter in the region, making it less vulnerable to the global rise in food prices. Headline inflation still remains at sub-3% levels, and it is unlikely to go above 5% despite upside risks.

Key sectors: manufacturing, solar and wind energy, food and agribusiness


Jakarta stock exchange has seen the biggest gains so far this year in Asia, up over 7% as Q1 corporate earnings were among the strongest in Asian markets. We attribute our bullishness on Indonesian markets to favourable demographics, abundant natural resources and a strong reform progress under President Joko Widodo on improving bureaucracy, boosting the infrastructure and the ease of doing business. Indonesia is a net commodity exporter, but a net oil importer. Therefore, it has benefited from the surge in prices of its main commodity exports (coal, palm oil, nickel, natural gas), helping to offset higher crude oil import costs. Many EV manufacturers are also looking to move their manufacturing units to Indonesia to be closer to the battery minerals. Meanwhile, inflation threat in Indonesia has been rather restrained, so the pressure on Bank Indonesia to hike rates is limited, and the rate hikes won’t necessarily need to be in step with the Fed.

Key sectors: infrastructure, materials, fintech


India remains key in many investor portfolios due to its favourable demographics, rapid urbanisation and digitalisation. Regulatory oversight in India, compared to China, is more consistent and predictable, although not as entirely business-friendly. Any further progress on land and labor reform will provide further impetus to India’s favourable business climate. Despite inflation running higher than the central bank’s target, and the Reserve Bank of India’s tightening will mean a short-term pain in the markets, but these can be looked as buying opportunities for the high-growth potential in the long run. This stems from India’s focus on expanding manufacturing and innovation, along with the further potential to broaden the use of digital technologies. Lastly, as global stagflation/recession concerns pick up, there is bound to be more demand for India’s outsourcing services.

Key sectors: tech (health tech, fintech), private banks, infrastructure


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