India among top 3 least favoured Asian stock market amid multiple headwinds

Global fund managers overall expect less than 5 per cent return from Asia stocks (excluding Japan) in a year, according to BofA Securities

India is among the three least-favoured Asian stock markets, according to BofA Securities whose survey found that 10 per cent of fund managers are underweight on Indian equities from a 12-month perspective.

 

Global fund managers overall expect less than 5 per cent return from Asia stocks (excluding Japan) in a year, according to the research and brokerage house. As many as 182 panelists with $513 billion worth of assets under management (AUM) responded to its global fund manager survey (FMS). Separately, 111 panelists with $214 billion worth of AUM responded to regional FMS questions between January 10 and 16.

 

China (with a net 23 per cent fund managers) and Thailand (13 per cent) are the other two Asian countries where more fund managers are underweight compared to Indian equities, said the survey. In China, investor patience is being put to test after a sharp rally in September failed to retain gains. 

 

“Unsurprisingly, growth optimism faded further, with net 10 per cent expecting the economy to strengthen, down from net 61 per cent in October. Structural bearish calls shot up to near survey-highs, while allocations nosedived to near survey-lows. FMS thinks that cash hoarding by households is here to stay, while less than 25 per cent are comfortable adding exposure on further signs of easing,” said BofA Securities.

 

Japan was the most preferred region in Asia where a net 53 per cent of fund managers remained overweight, followed by Taiwan (20 per cent) and South Korea (3 per cent). “The optimism on Japan remains unscathed, as 20 per cent of the participants surveyed by BofA expect double-digit return from equities in the next 12 months.”

 

Tepid 2025

 

Analysts at BNP Paribas Securities, too, see a tepid 2025 for Indian equities and expect returns to be in single digits.

 

As high-frequency indicators in India show signs of bottoming out, the analysts see other headwinds (high food inflation, high US bond yields, rising dollar index and firming up commodity prices) that are likely to keep the market sentiment in check for most of the year. 

 

“The appetite for buying expensive emerging market equities should remain low, unless there are signs of a strong recovery in growth. Strong domestic inflows continue to support the Indian equity market, and we do not see any major risk to this. We see low likelihood of valuation multiples rerating in 2025 and expect market returns to track or slightly lag earnings growth,” wrote Kunal Vora, head of India Equity Research at BNP Paribas India, in a recent note.

 

APAC markets

 

According to BofA, the economic outlook for Asia-Pacific (APAC) excluding Japan is at its second-weakest level in two years. A net 3 per cent of survey participants see a weaker economy 12 months out compared to 39 per cent seeing a stronger economy in November.

 

“The bearishness on the economy rubbed off on return expectations with a majority expecting less than 5 per cent returns in the APAC ex-Japan equities in the next 12 months,” it said.

 

Semiconductors dominate regional sector allocations followed by those to banks and consumer staples, while real estate and materials lag.

 

“AI (artificial intelligence)/semis, dividends/buybacks and internet are favorite China themes while in India, IT services, a beneficiary of the falling rupee, jumps to the top with infra coming next,” BofA Securities said.