Asia EM Equity Strategy_ Asia_EM Market Allocation – Defensive and Domestic Rotation_ Move UW Australia and Increase Taiwan UW

Summary of Key Points from the Conference Call Industry or Company Involved - Focus on Asia/EM (Emerging Markets) equity strategy, particularly in the Asia Pacific region Core Insights and Arguments 1. Market Allocation Adjustments: The company has moved to an underweight (UW) stance on Australia and increased its underweight position on Taiwan, while advising positioning in India, Japan (especially domestics), Singapore, and UAE. China tech-related sectors are expected to outperform in a global equity correction [1][4][5] 2. US Growth Downgrade: The US economics team has revised down its growth forecasts to 1.5% YoY in 2025 and 1.2% YoY in 2026, influenced by tariffs and fiscal tightening. The Federal Reserve is expected to cut rates only once more in 2025, with a deeper cutting profile anticipated in 2026 [2][12] 3. Reallocation of Asia/EM Portfolios: The downside beta of Asia/EM is believed to be lower than during historical growth scares due to valuation discounts to the US, low positioning on EM equities, and solid earnings prospects in Japan, India, and parts of China. However, China's deflation remains a headwind [3][4] 4. Cautious Stance on Exporters: The company recommends reducing exposure to high relative valuation markets and focusing on domestic drivers. It sees potential leadership transitions in markets like Japan and India, while remaining cautious on exporters and tech sectors [4][13] 5. Underperformance Risks: The company has moved to an underweight stance on Australia, Taiwan, and South Korea due to high correlation with the US market and revenue exposure. It has also downgraded Saudi Arabia and Indonesia [5][23] 6. Japan's Resilience: An increase in Japan's allocation is recommended, focusing on domestic sectors such as Financials and Real Estate, with a target price for TOPIX set at 3,000, indicating an expected growth of 11% [44][46] 7. India's Growth Potential: India is viewed as relatively insulated from US growth risks, with attractive valuations and expected GDP growth of 6.3% in F2025 and 6.5% in F2026. The company maintains a 150bp overweight recommendation for India [52][54] 8. Caution on Taiwan and Korea: The underweight position on Taiwan has been expanded to 150bp due to high revenue exposure to the US and negative trade risks. Korea is also underweight but to a lesser extent [63][64] 9. China's Structural Recovery: Despite ongoing deflation, improvements in ROE and corporate actions are expected to support a gradual recovery in China, with a preference for offshore equities and specific sectors like Internet and E-Commerce [75][81] Other Important but Possibly Overlooked Content 1. Valuation Concerns: Australian equities are noted to have seen substantial valuation expansion, making them vulnerable to value-factor outperformance amid high policy uncertainty [37][40] 2. Political Risks in Australia: The upcoming federal election and its potential impact on government spending and economic policy are highlighted as key factors to monitor [41][43] 3. Sector-Specific Insights: The company emphasizes a cautious approach towards banks in Australia while favoring defensive industrials and resources due to valuation support [43][44] 4. Emerging Market Dynamics: The report discusses the potential for market pricing of Fed cuts in 2026 and a weaker DXY to support value-oriented segments in Asia/EM [3][4] This summary encapsulates the key points discussed in the conference call, providing insights into market strategies, economic forecasts, and sector-specific recommendations.