As global trade tensions and tariff uncertainties persist, foreign investors remain cautiously optimistic about Asian markets, drawn by multiple tailwinds that are attracting global capital.
The rotation of investments from US markets to Asian equities may be just beginning, fueled by two key factors: Gradual currency appreciation and an earnings estimate inflection point, said Manishi Raychaudhuri, founder and CEO of Emmer Capital Partners Ltd., in a Reuters commentary published Wednesday.
Since February, the Chinese yuan has risen 2.4 percent, while the Singapore dollar and Indian rupee have gained 3.6 percent and 2.3 percent, respectively. Currency appreciation is often associated with increased foreign capital inflows, and analysts expect this trend to continue, particularly in under-owned Asian markets.
With fundamentals in many Asian markets now appearing to turn around—driven by positive trends in China and improved consumption in South Asia—we could soon see an inflection point, Raychaudhuri noted.
Forty-five percent of investors viewed China's economic rebound as the biggest upside factor in the emerging-market outlook, up from 29 percent in the previous survey, according to HSBC's Emerging Markets Sentiment Survey for March.
Analysts suggest that growing confidence in China's economic prospects, alongside recent stimulus measures, is attracting global investors seeking opportunities beyond developed markets.
Acknowledging concerns over ongoing trade disputes and potential US tariff hikes, Deutsche Bank noted in a report on Tuesday that Chinese equities could still benefit from further fiscal and monetary policy measures, which are expected to be adjusted in response to external challenges.
Meanwhile, Goldman Sachs said Japan's currency screens as a more attractive hedge for the downside view on US growth than it has done for some time, according to a report by Bloomberg.
Goldman Sachs expects the yen to climb to the low 140 levels against the dollar this year as jitters around US growth and trade tariffs bolster demand for the safest assets.
If US recession risks increase, the yen is likely to emerge as the top safe-haven asset for investors seeking downside protection, said Kamakshya Trivedi, head of global foreign exchange, in an interview in New York, Bloomberg reported.
Despite geopolitical and macroeconomic risks, analysts suggest that Asia's improving fundamentals and supportive policy measures could make it an increasingly attractive destination for global capital in the months ahead.