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by David Soh, Head of Research, Portfolio Manager, RBC Asian Equity, RBC Global Asset Management (Asia) Limited Jan 20, 2025

David Soh, Portfolio Manager and Head of Research, RBC Global Asset Management (Asia) Limited, shares his thoughts on 2024 and the year ahead.

Reviewing the market, we continue to see China (30%) and India (20%) dominate the MSCI Asia ex-Japan benchmark. However, these two markets have really moved their separate ways. The major decoupling between China and India versus the rest of Asia has continued, if not widened further, in 2024.

Recently, both India and China have shifted momentum, with Indian equities pulling back and Chinese equities rallying. This was partly triggered by China announcing policies to stimulate the economy, but also because India's valuation premium to China was at extremes.

Looking ahead, India is fundamentally very exciting. Given India's current developmental stage, with GDP per capita roughly where China was 15 years ago, there's a lot of long-term growth potential1. That said, valuations levels are stretched and recent weakness in consumption and earnings growth estimates also show the need for caution.

On the other hand, we continue to find greater China attractive, but there's a lot to watch there. The fiscal stimulus and policy measures from Beijing are still lacking detail, be it for the property market or animal spirits in general. Exports played a significant role for growth in 2024, but US tariffs under Trump's second term add uncertainty. The first half of 2025 is likely to be somewhat volatile and headlines-driven, but valuations in China today are at historical lows of 10x earnings2.

Watch time: 3 minutes, 15 seconds

View transcript

David Soh

Portfolio Manager

RBC Global Asset Management (Asia) Limited

 

David Soh: If you look at Asian equity, Asia ex-Japan index, you have China and India each taking up about 30% and 20% of the index. One key trend that we saw over the last three, four years in Asian equity is that these two markets have really moved their separate ways. The whole notion of these emerging economies leading global growth based on a common set of macro drivers has really become an outdated heuristic. The major decoupling between China and India versus the rest of Asia has continued, if not widened further in 2024.

In more recent months, September and October, both India and China had a relatively sharp price momentum shift, with Indian equities pulling back and Chinese equities rallying. This was partly triggered by China announcing policies to stimulate the economy, but also because India's valuation premium to China was at extremes.

Looking into 2025, we are underweight India. Fundamentally, India is very exciting. Modi wasn't as strong in his recent elections, but there's policy continuity, and given India's current development stage with GDP per capita roughly where China was 15 years ago, there's a lot of long-term growth potential. That said, the valuations levels are stretched at 22 times for PE. Recent weakness in consumption and earnings growth estimates also show the need for caution. At times like this, we really try to be more selective with our stock picking, discerning the potential long-term winners from the rest.

On the other hand, we are slightly overweight on our combined exposure to China and Hong Kong. Frankly, there's a lot to watch here. The fiscal stimulus and policy measures from Beijing are still lacking details, be it for the property market or animal spirits in general. Exports played a really big role for growth in 2024, but U.S. tariffs under Trump's second term adds uncertainty. The first half of 2025 is likely to be somewhat volatile and headlines driven. That said, the market rallying like it did in late September, even with policy measures that lacked real substance, reminds us that valuations in China today are at historical lows of 10 times for PE.

Our Asian equity team, based in Hong Kong, has Asia strategies and also a separate China strategy. These strategies are both supported by a team of pan-Asia industry specialists. We're relying on what we do best, strong in-house research and risk management discipline to navigate 2025, finding the best ideas to own for the long run across Asia.

1, 2 Bloomberg, as at November 2024.

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Date of publication: Jan 20, 2025

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