Nomura

Equity markets in 2019: soft power matters

  • Despite a slowdown in economic rates across AEJ next year, we can expect some structural changes in the way investors look at Asia, particularly China
  • China is expected to supersede Japan as the biggest market in the region by 2023
  • We expect income-seeking investors to favor putting money to work in Asia markets

As we approach 2019, we see a slowdown in economic growth rates across the region, but we can also expect some structural changes in the way investors view Asia, such as the China market. Traditionally, investors have looked at China in the context of Asia ex-Japan. However, our projections suggest China will be the biggest component of Asia-Pacific, superseding Japan as the biggest market in the region by 2023.

Other possible changes in 2019 include how indices view China, specifically, MSCI A-Shares. Within 18 months, we expect the weighting attributed to MSCI A-Shares to go up fivefold. Simultaneously, we also expect investors to be quite defensive given the slowdown in economic growth rates. Because of this, we see investors prioritizing dividends as well as companies with strong balance sheets and corporate governance reform.

In all three big markets in Asia, namely China, Japan and Korea, we see some attractions. This is particularly visible in Korea, where one of the largest pension funds has now embraced the stewardship code. Additionally, in markets such as China, the largest dividend payer globally is China Mobile, which is surprising for many global investors. For that reason, we expect income-seeking investors will tend to favor putting money to work in Asia markets.

To read the full 2019 outlook on China strategies, click here.

Contributor

  • Jim McCafferty

    Joint Head of APAC Equity Research

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