Jason Pidcock discusses what to expect in Asia Pacific (ex-Japan) equity income markets, and what won’t be changing in the new year.
Our outlook doesn’t change with the calendar. The portfolio stays fairly consistent, and that is because as investors we take a longer-term view.
When talking about 2025, we would avoid making broad market predictions, but we can make some assumptions. For example, it’s likely that geopolitical tensions will remain elevated and could deteriorate further. However, we do see the tech sector as a bright spot as it remains in an AI-led structural upturn. We don’t know for sure what is going to happen to the US economy in 2025. There will be two-way pulls from the recent increase in the US dollar and bond yields impinging on credit costs on one hand and the likely cuts to taxes and deregulation on the other. It’s likely that while inflationary pressures have eased, higher import tariffs could slow progress here.
Higher tariffs to spoil the party?
We will have to see whether higher tariffs are placed on goods imported by the US from countries across Asia, or just China. Overall, we are feeling reasonably positive and would expect to see some level of earnings and dividend growth in 2025 in the Asia Pacific region. We think that the Australian, Indian and Singapore economies are likely to continue to see growth and to outperform peers. As we noted above, we have a high degree of confidence in the technology sector and in the tech companies that we own, which are primarily Taiwan-listed. We believe these companies are trading at attractive valuations, not only on an absolute basis, but also on a relative basis when compared to many US large-cap tech stocks.
Tech & tools
We have a diversified portfolio which we think can do relatively well regardless of whether global growth falters, or not. We try to manage the strategy so that under a broad range of scenarios we should be able to perform, regardless, of which investment style is in vogue or what the interest rate or economic outlook may be. And we have that diversity within the portfolio, e.g. a defence business, a gold miner and telecom, utility and consumer staples companies. We would expect these businesses to be more insulated from events outside the region. The more global companies, including a maker of power tools and the five technology companies that we hold, will probably benefit if the US economy and demand remains strong.
Avoiding China
We will continue to avoid investing in mainland China because we think the political system, geopolitical risks and the state of the economy make the market unattractive. We think that geopolitical tensions between China and the US, Europe and some Asian nations could worsen.
We believe that investing in quality, growing, income-producing companies in the Asia Pacific region, businesses that can provide revenue growth alongside high and sustainable or growing dividends, is the best way to generate attractive total returns over the longer term. That is not going to change with the calendar either.
