 The big, easy buy story in Asia looks over. We’re now in for a tough grind as a lot of high-growth narratives get repriced  It is all about sectors and styles. We remain neutral on China Internet and balanced on value and growth; we see some support from lower bond yields later in 2021  With limited upside to our latest index targets, we make no changes to our current market weightings, and include Japan for the first time (at neutral). We remain neutral on mainland China and stay overweight some ASEAN markets Not chasing indices. While earnings were the fuel that powered markets higher at the start of the year, we are likely nearing a peak in the earnings upgrade cycle. China is starting to see lower consensus earnings expectations as Internet companies face downgrades (The Flying Dutchman: Peak China Internet (II), 26 March 2021). PEs have fallen. And bond yields continue to cause Asian markets to wobble. All this takes the wind out of the sails of Asian equities; we see limited upside to our index targets.

From the ground up. Given widely different movements in stocks across Asia, we believe this is the time to look at sectors and styles and to take a “from the ground up” approach to markets. We continue to prefer a balanced approach to value and growth, are neutral on China Internet, and look for (1) structural shifts (premiumisation, 5G, EV), (2) regulatory reforms (China Internet, renewables), and (3) post-pandemic beneficiaries that lagged in 2020 (demand for hydrocarbons, PCs, and banks). Plenty more here: 2021 Asia Essentials: 120-plus ideas (17 March 2021).

Retailers and IPOs. Retail investors continue to pour cash into Asia’s stock markets.

Meanwhile, the number of IPOs is also rising fast. It suggests Asians are buying Asia.

It is uncertain how high retail participation changes market dynamics – are they stable investors or punters that run for the hills if there is a wobble?

Market and sector views. We make no changes to the market weightings published in our last quarterly, remain overweight on a few selected ASEAN markets, and stay neutral on mainland China. In sector weightings, we downgrade Consumer Goods to underweight (from neutral) and continue to prefer certain cyclicals: Basic Materials, Oil & Gas, Industrials, and Financials. With this edition of the Asia Equity Insights Quarterly, we incorporate Japan into our market weightings for the first time (previously included in Global equities in 2021, 1 December 2020), at neutral.

For our strategy lists, please see The Flying Dutchman, 7 April 2021.