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

On an overall basis, global fund managers expect less than 5 per cent return from Asia ex-Japan stocks in the next one year, BofA Securities’ survey findings suggest.

India is among the top three least favoured Asian stock markets, according to a recent note by BofA Securities, with 10 per cent of the fund managers surveyed by the research and brokerage house remaining underweight on Indian equities from a 12-month perspective. 

On an overall basis, global fund managers expect less than 5 per cent return from Asia ex-Japan stocks in the next one year, BofA Securities’ survey findings suggest. 

182 panelists with $513 billion worth of assets under management (AUM) responded to the global fund manager survey (FMS) questions, BofA said, while 111 panelists with $214 billion worth of AUM responded to the regional FMS questions between January 10 and 16.

Only China (with a net 23 per cent fund managers) and Thailand (13 per cent) are the other two Asian regions where fund managers are more underweight as compared to Indian equities, survey findings suggest. 

In China, investor patience is being put to test yet again, BofA Securities said, as the sharp rally in September failed to hold on to the 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 bearishness 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,” BofA Securities said.

Japan, on the other hand, was the most preferred region within Asia where a net 53 per cent of the respondents / fund managers remained overweight, followed by Taiwan (20) and South Korea (3). 

“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,” BofA said. 

Tepid 2025 

Those at BNP Paribas Securities, too, see a tepid 2025 for Indian equities and expect returns to remain in single digits in the next one year. 

While high-frequency indicators in India are showing signs of bottoming out, analysts at BNP Paribas Securities 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 part 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 

APAC ex-Japan economic outlook, according to the BofA, stayed at its second-weakest level in two years, with net 3 per cent of the participants seeing a weaker economy 12 months out versus net 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,” BofA Securities said. 

Semiconductors dominate the regional sector allocations, the survey findings suggest, followed by increasing allocations to banks and consumer staples, while real estate and materials lag. 

“AI/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.