Asia’s shares have long underperformed the U.S.
Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 11/13/23
* Based on next twelve months P/E ratio
Growth is this region’s strength, whether through ongoing industrialization, as for example in China and Vietnam, and/or through population growth, as in India and the Association of Southeast Asian Nations (ASEAN) states. Indeed, the appeal of the region lies in the various strengths that it combines: whether it’s Australia's wealth of natural resources and western-style service sector; Japan's established and often world-leading industry; India's[1] demographics and up-and-coming companies in the tech and service sector; or China's continued growth, with leading positions in important sectors such as renewable energies. China is currently experiencing a period of weakness due to the real-estate crisis and ongoing disputes with the U.S., among other things. But the fact that many Western companies want to reduce their dependence on China often benefits China's emerging neighbors. In general, investors who do not feel comfortable in China’s capital market due to regulations and uncertainty may be able to participate in its size and growth via neighboring countries, particularly Japan and South Korea.
In the near term, the region has much to be said for it. The headwinds from rising U.S. interest rates and U.S. dollar appreciation are abating, and after a difficult year China should slowly regain its footing. Meanwhile, Japan is currently shining more than in years. Wages and inflation are at last rising again and companies are accelerating their restructuring. Finally, what speaks not only for Japan but for the entire region is that international investors are still significantly underweight and the valuation discount to the S&P 500 is close to its historic high.[2]
