HSBC: Asian Equities in AI Boom, Yields Tug of War
Herald van der Linde, HSBC's head of equity strategy for Asia-Pacific, notes a more positive stance on regional equities after the US Federal Reserve's September rate hike.
Asia Equities Face Macro Headwinds
HSBC's Herald van der Linde, head of equity strategy for Asia-Pacific, observes a complex environment for Asian equities. He describes the market as being in a "tug of war" between two opposing forces: rising bond yields and elevated oil prices, versus the significant momentum from the ongoing artificial intelligence (AI) boom.
Van der Linde has adopted a slightly more optimistic view on Asian equities since the US Federal Reserve's latest interest rate increase in September. He believes markets have largely accounted for the anticipated effects of higher US rates, noting that Asian equities often improve after initial Fed hikes.
AI Dominates Growth, Markets Diverge
Van der Linde emphasises that AI remains the singular dominant growth narrative across Asia, encompassing all related sectors. This concentration necessitates distinguishing between individual markets, rather than treating Asia as a uniform investment area.
Currency fluctuations also present a critical factor for US dollar-based investors, given their substantial impact on regional equity returns. South Korea and Taiwan are identified as primary beneficiaries of the AI surge. South Korea's equities saw a speculative AI-driven rally earlier this year, followed by a "washout" that removed some excess. Taiwan's market also gained from AI, led by semiconductor leader TSMC, with less speculation.
Varied Regional Performance
Beyond AI, South Korea shows strength in nuclear power and defence equipment, driven by global demand. India, while generally an "interesting market", currently sees its appeal diminished by North Asia's strong AI trade, resulting in lukewarm investor interest.
In Japan, van der Linde points to challenges for the automobile industry due to Chinese competition, but highlights opportunities in high-end AI semiconductors and banking. ASEAN presents a varied picture, with Singapore's banks benefiting from higher interest rates, and Malaysia and Thailand attracting data-centre investments.
For Greater China, Hong Kong's property market faces headwinds from higher rates, and retail activity slows as consumers visit Shenzhen. The city's initial public offering (IPO) market may cool as China limits capital flows. Chinese technology stocks listed in Hong Kong, sensitive to bond yields, could improve if yields retreat.
Mainland China's economy struggles with weak consumer and property confidence, though biopharmaceuticals and banks show promise. Van der Linde anticipates bond yields will decrease, potentially supporting Asian equity valuations. He suggests investor comfort with AI might diminish as more AI-related equity supply enters the market.
HSBC's equity strategy team maintains a "risk on" posture, with van der Linde suggesting investors maintain full equity exposure.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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