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Investment Strategy

Asia Mid-year Outlook 2024: Rising optimism but risks on the horizon

Jun 6, 2024
Authors: Asia Investment Strategy Team


The outlook in Asia remains relatively stable even as economies have grappled with a ‘higher for longer’ environment and some stubborn inflation pressures. However, markets are seeing support from a global cyclical uplift and central banks have been careful in balancing growth with stability. Furthermore, Asian economies can gain market share from accelerated trade redirection as a result of increased trade tensions and benefit from the ongoing boom in artificial intelligence.

We retain a broadly constructive view on Asian markets. We continue to favor 1) Japanese equities on reflation and continued corporate reform, specifically in the financials, technology, industrials and real estate sectors; 2) Semiconductor leaders as key Artificial Intelligence beneficiaries; and 3) Indian equities as a long-term allocation following the conclusion of the general elections.

 

As we discussed in our Asia outlook report in January, most of Asia (with the notable exception of China) delivered strong equity returns despite a tough macro environment in 2023. That has continued into 2024 with a rally in China and the continued outperformance of Taiwan and Japan. In this note, we update our outlook for the broad Asia region, and will focus on China in an upcoming publication.

SO FAR, 2024 HAS BEEN A STRONG YEAR FOR ASIAN EQUITY MARKETS

Year-to-date equity price return, %

Source: Bloomberg Finance L.P. Data as of June 2024.
The bar chart shows the year-to-date (YTD) equity price returns for 2024 across Asian equity markets. The horizontal axis represents different countries, while the vertical axis indicates the percentage returns. Each bar corresponds to a specific country, showing how much the equity prices have changed from the beginning of 2024 to June 2024. YTD equity price returns, %: • Thailand: -5% • Indonesia: -2% • Philippines: -1.2% • South Korea: 0.3% • India: 1.4% • Singapore: 3.1% • China: 5.2% • Hong Kong: 8.5% • Malaysia: 10.5% • Vietnam: 13.9% • Japan: 17.8% • Taiwan: 19.1% Taiwan has the highest YTD equity price return at 19.1%, followed by Japan at 17.8% and Vietnam at 13.9%, indicating strong performance in their equity markets for 2024.
While growth fundamentals across the region remain relatively stable, various economies have continued to grapple with ‘higher for longer’ U.S. rates, which pressured local currencies relative to the U.S. dollar. Alongside stubborn inflation for some economies, these pressures have kept most central banks largely on hold so far this year, with a slightly hawkish bias. Meanwhile, Japan continues to embark on its reflation path alongside a persistently weak yen, igniting debates around whether the Bank of Japan (BoJ) should hike rates more quickly, after they exited negative interest rates earlier this year.

ASIAN CURRENCIES HAVE CONTINUED TO COME UNDER PRESSURE FROM A STRONG USD IN 2024

Year-to-date spot FX return vs USD, %

Source: Bloomberg Finance L.P. Data as of June 2024.
The bar chart shows the year-to-date (YTD) spot FX returns of Asian currencies vs USD for 2024, in percentage terms. The horizontal axis represents different Asian currencies while the vertical axis indicates the percentage returns. Each bar corresponds to a specific country, showing the Asian currency’s return against the USD from the beginning of 2024 to June 2024. YTD spot FX returns vs USD, %: • HKD: -0.02% • INR: -0.3% • CNH: -1.75% • SGD: -1.97% • CNY: -1.99% • MYR: -2.26% • IDR: -5.07% • TWD: -5.22% • PHP: -5.70% • KRW: -6.39% • THB: -6.53% • JPY: -9.25% All Asian currencies have experienced depreciation against the USD YTD, with the JPY exhibiting the highest depreciation against the USD at -9.25%, indicating the most significant decline among the currencies. On the other hand, HKD was flat vs the USD, with a YTD spot FX return vs USD of -0.02%.
Meanwhile, geopolitics and Artificial Intelligence will likely also impact the region in various ways. Some economies may continue to benefit from accelerated trade redirection as manufacturers diversify production across the region. A number of Association of Southeast Asian Nations (ASEAN) economies have already grown their U.S. import shares of tariff-impacted categories and this could continue alongside increased foreign direct investment into supply chains and transshipments, including from Chinese manufacturers.

ASEAN’S SHARE OF U.S. IMPORTS IN KEY SECTORS HAVE RISEN AT THE EXPENSE OF CHINA

U.S. information and communication technology (ICT) imports from China and ASEAN as % of U.S. total ICT imports

Source: U.S. Census Bureau, J.P. Morgan Investment Bank. Data as of April 2024.
The bar chart shows U.S. information and communication technology (ICT) imports from China and ASEAN as a percentage of U.S. total ICT imports for different time periods: 2015-17 • China: 43.8% • ASEAN: 16.7% 2018-19 • China: 40.4% • ASEAN: 17.1% 2020-22 • China: 31.7% • ASEAN: 23.3% 2023 • China: 27.7% • ASEAN: 26.9% Year-to-date (YTD) 2024 • China: 24.9% • ASEAN: 26.4% U.S. ICT imports from China experienced a steady decline from 43.8% during the period of 2015 to 2017 to 24.8% in 2024 YTD. In contrast, U.S. ICT imports from ASEAN countries have shown a modest increase from 16.7% during the period of 2015 to 2017 to 26.4% in 2024 YTD.

The global AI boom is also positive for many parts of Asia, including leading semiconductor players in Japan, South Korea, and Taiwan. Asia’s trade cycle has historically been correlated to the global investment cycle, particularly that of the U.S. Considering 30% of Asia’s goods exports are in tech, the U.S. tech investment cycle has implications for the region’s exports and India’s IT services exports. This could continue to provide a tailwind for Asia, as we expect the AI buildout and tech capex spending to remain strong in the U.S.

Against this backdrop, we continue to hold a broadly constructive view on Asia, while focusing on the following investment themes:

  • Japanese equities on reflation and continued corporate reform, specifically in the financials, technology, industrials and real estate sectors.
  • South Korean and Taiwan semiconductor leaders as key AI beneficiaries.
  • Indian equities as a long-term allocation following the conclusion of the general elections.

Earlier this year, we wrote about reflation as a macro regime shift for Japan, and the investment opportunities presented to investors over a multi-year horizon. To recap, we see multiple tailwinds supporting Japan’s transition from deflation to reflation:

  1. A virtuous cycle of rising wages, stronger consumption, and higher nominal growth.
  2. A shift in global supply chains and technological trends.
  3. Export competitiveness due to a weak JPY.
  4. Fiscal incentives aimed at attracting global investments.

All of these factors are still in place, and in our view will likely continue to support the performance of the Japanese economy and market in the rest of 2024 into 2025.

Cyclically, Japan’s economy can benefit from a recovery in global trade and further normalization of domestic demand. Japan’s May 2024 manufacturing PMI rose into expansion for the first time in 12 months. An upturn in global trade usually bodes well for Japan’s export-oriented economy. Furthermore, in the current global environment, Japan is also uniquely positioned to benefit more meaningfully for two reasons.

First, Japan has a significant comparative advantage – or virtually monopolistic positions – in some parts of the semiconductor supply chain. This puts Japan in the center of two secular growth trends: the global race for semiconductor resiliency and the development of AI.

JAPANESE INDUSTRIES HAVE NEAR MONOPOLIES IN SOME AREAS OF SEMICONDUCTOR INFRASTRUCTURE

Japan’s percentage of global market share

Source: Center for Strategic and International Studies, Japan Cabinet Office, J.P. Morgan Investment Bank. Data as of March 2024.
The bar chart shows Japan’s percentage of global market share for semiconductor infrastructure components: • Coasters for EUV: 100% • Photoresist: 100% • Resist processing: 96% • Wafer crystal machining: 95% • Photomasks: 91% • Wafer handling equipment: 88% • High-end photoresist: 75% • Silicon wafer: 60% • Semiconductor materials: 50% Japan is a significant player in the semiconductor industry, with near monopolies in manufacturing equipment and materials, evidenced by their large global market share in some areas of semiconductor infrastructure.
Second, a weaker JPY further boosts the export competitiveness of Japanese industries. Not only is the JPY much lower compared to the USD relative to pre-pandemic years, the JPY has also slid to some of its most competitive levels against a basket of trade partners in 30 years. Even if the currency strengthens moderately from current levels, it is likely still supportive of exports.

THE JAPANESE YEN IS AT SOME OF ITS MOST COMPETITIVE LEVELS IN 30 YEARS AGAINST A BASKET OF TRADE PARTNERS

Effective exchange rate, indexed 2020=100

Source: Bank of Japan, Bloomberg Finance L.P. Data as of December 2023.
The line chart shows Japan’s effective exchange rate in nominal and real terms from 1993 to 2023, with 2020 set as the base year with a value of 100. Indexed values above 100 indicates an increase relative to 2020 while indexed values below 100 indicates a decrease relative to 2020. Real effective exchange rate started at 164 in 1994 and has declined over the past 30 years to 74 as of December 2023. On the other hand, nominal effective exchange rate was at 82 in 1994 but remained largely range-bound during the 30-year period, falling slightly to 77 in December 2023. From 2020 to 2023, both nominal and real effective exchange rate have decreased from 100 in 2020 to 77 and 74 in 2023 respectively, hitting the lowest levels seen in 30 years against a basket of trade partners.
For these reasons, Japan’s corporate outlook has remained positive. Business sentiment and capex spending have ramped up broadly in 2023. Global companies are also increasing their investments in Japan, particularly in the technology sector. The positive business outlook combined with record corporate profitability bode well for sustained wage growth in the coming years. 

JAPANESE CORPORATE PROFITABILITY IS AT A RECORD

Profits, all industries, JPY billions

Source: Ministry of Finance, Haver Analytics. Data as of March 2024.
The line chart shows Japan’s operating profits and current profits for all industries in JPY billions from 1984 to March 2024. Operating profits for all industries in Japan started at 6,883 JPY billions in 1983 and have increased steadily to 21,180 JPY billions in March 2024. Current profits for all industries in Japan experienced a faster growth during the same time-period, increasing from 5,439 JPY billions in 1984 to 27,427 JPY billions in March 2024. Both operating and current profits reached record highs in March 2024, suggesting record corporate profitability for Japanese companies.
For the domestic economy, more cumulative evidence of wage gains is an important ingredient for the consumption recovery. Much analysis has focused on the consumption slowdown in 2023 due to negative real wage growth and mixed views from households on the inflation revival. But we think the situation could gradually improve in the second half of 2024. Economic data suggests that the ‘inflation shock’ has continued to subside. The BoJ’s core inflation will likely continue to decelerate towards 2% as pandemic distortions unwind. We think real wage growth will likely turn positive in late 2024, paving the way for a consumption recovery in 2025.

JAPAN’S CORE INFLATION WILL LIKELY CONTINUE DECELERATING TOWARDS 2%

Bank of Japan core inflation: CPI less fresh food and energy, %

Source: Ministry of Internal Affairs and Communications, Haver Analytics. Data as of April 2024. CPI = Consumer Price Index.
The line chart shows the Bank of Japan core inflation – consumer price index (CPI) less fresh food energy, in percentage terms from 2020 to 2024. The chart plots the 3-month, 6-month and 12-month trend. 3-month core inflation started at 1.20% in January 2020 then fell to -1.6% in April 2020. This was followed by an increase to 2.43% in February 2021 but fell sharply to -5.46% in April 2021, it then rebounded sharply back to 1.22% in July 2021. From July 2021 to October 2021, there was a slight decline in 3-month core inflation to -1.20% in October 2021. This was followed by an increase from -1.20% in October 2021 to peak at 5.15% in May 2023. However, it has been on a decline since, falling from 5.15% in May 2023 to 0.76% in April 2024. A similar pattern can be seen for 6-month and 12-month core inflation, but a smoothed-out perspective compared to the 3-month trend as it captures medium-term changes for 6-month and offer a longer-term view for 12-month trend. All three lines show a gradual decline towards 2%, with the 3-month and 6-month core inflation already below 2% as of April 2024, at 0.76% and 1.33% respectively.

Given the growth and inflation trajectory, we think the BoJ will likely not hike rates in 2024. The BoJ’s own forecast is for the economy to reach “sustainable 2% inflation” in late 2025. Greater confidence in this outcome could allow for a modest rate hike (around 20bps) in 2025, but there appears no need to rush.

In recent weeks, persistent JPY weakness has led some analysts to argue that the BoJ needs to raise rates more quickly and aggressively to prevent runaway imported inflation. We disagree for three reasons:

  1. We doubt Japan’s interest rate policy can be used successfully to influence the exchange rate.
  2. Imported food and energy prices are temporary factors, and more so in Japan than in economies like the U.S.
  3. There is no evidence that the JPY exchange rate adds to meaningful inflation.

YEN WEAKNESS HASN’T MEANINGFULLY LED TO IMPORTED INFLATION

(LHS) Import price level; (RHS) Import inflation, indexed 2015=100

Source: Bank of Japan, Haver Analytics. Data as of May 2024.
The line chart shows Japan’s import price level (as represented by the left axis) and Japan’s import price inflation (as represented by the right axis) from 2015 to May 2024, with 2015 set as the base year with a value of 100. Import price level started at 112 in January 2015 and stayed largely range-bound from 2015 to 2020, settling at 109 in February 2020. This was followed be a dip in May 2020, when import price level fell from 109 in February 2020 to 56.6. From May 2020 to July 2022, import price level increased from 56.6 to 231.1 then fell to 172.8 in April 2023. Import price level rose from 172.8 in April 2023 to 190 in May 2024. Overall, there has been an increase in import price level from 112 in 2015 to 190 in May 2024, due to yen weakness. However, this has not meaningfully led to imported inflation. Import price inflation started at -33 in January 2016, which then increased to 51.1 in March 2017 and this was followed by a gradual decline to -50.2 in May 2020. From May 2020 to May 2021, there was a spike in import price inflation from -50.1 to 104.1. It then decreased -25.1 in July 2023 before increasing again to 4.0 as of May 2024.

While markets could remain vigilant over oil prices and FX developments, vigilance is insufficient justification for tightening. 

After three lost decades, policymakers in Japan have welcomed reflation with open arms. Our base case is that the monetary, fiscal and regulatory environment will likely remain highly conducive to continued reflation and economic normalization in the coming quarters.

JAPAN’S MACRO ENVIRONMENT WILL LIKELY REMAIN CONDUCIVE TO CONTINUED REFLATION WHILE MANAGING DEBT SERVICING COSTS

Debt servicing costs, % of nominal GDP

Source: J.P. Morgan Investment Bank. Data as of April 2024.
The chart contains multiple data points represented as dots, showing the nominal long term interest rate on the x-axis and the corresponding debt servicing costs as a percentage of nominal GDP on the y-axis. The general trend illustrated by the chart is that as nominal long-term interest rates increase, debt servicing costs as a percentage of nominal GDP also tend to increase. When nominal long term interest rate is at 0.3%, the debt servicing costs as a percentage of nominal GDP is at 0.63%. When nominal long term interest rate is at 3.9%, the debt servicing costs as a percentage of GDP will be higher at 6.63%. If productivity growth stays low, it implies that the economy is not improving its efficiency. In such a scenario, the nominal long term interest rates are lower and debt servicing costs as a percentage of nominal GDP also remain low vs. a scenario where productivity growth accelerates. The potential GDP growth range estimate for Japan is 0.5 to 2.5, as of April 2024. In such an environment which is the baseline scenario (productivity growth stays low), nominal long term interest rates and debt servicing costs will remain low. Even in the event of reflation (productivity growth accelerates), nominal long term interest rates will increase but servicing costs will remain manageable. With a 3.9% nominal long term interest rate, debt servicing costs will be 6.6% of nominal GDP.

Japanese equities: building on reflation

We remain positive on Japanese equities, with a focus on financials, technology, industrials and real estate. We initiate a June 2025 TOPIX outlook of 3,025-3,125, offering low-mid teens percentage point total return over the next 12 months. Corporate earnings growth in the March quarter remains above developed market peers at 10% YoY, and we expect 9-11% earnings growth over the next 12 months. In addition, corporate reform is accelerating, with share buybacks growing 50% YoY. While corporate guidance for FY25 earnings to decline 1-2% YoY appears somewhat conservative, we believe this leaves scope for guidance to be revised higher over the next six months. Companies are increasingly of the view that price increases are becoming persistent and domestic capex spend is back at an all-time high, implying further evidence that reflation is back.

JAPANESE SHARE BUYBACKS ARE TRACKING AT OVER 69% YoY

Share buybacks in trillion JPY

Source: Tokyo Stock Exchange, J.P. Morgan Investment Bank. Data as of May 2024. * refers to data comparison between 2MFY24 and 2MFY23.
The line chart shows Japanese share buybacks in trillion JPY for each fiscal year from 2015 to 2024 (YTD) on a quarterly basis. In recent years (2021-23), there has been a consistent rise in total value of share repurchased by Japan corporates. Each year from 2021 to 2023, the total number of shares bought back has increased as depicted by the ascending lines. In 2021, Japanese corporates bought back 2.5 trillion JPY worth of shares in 1Q21, which increased to 14.6 trillion JPY as of 4Q21. In 2022, Japanese corporates bought back 4.2 trillion JPY worth of shares in 1Q22 which rose to 17.2 trillion JPY as of 4Q22. In 2023, Japanese corporates bought back 4.2 trillion JPY worth of shares in 1Q23, which then increased to 19.0 trillion JPY as of 4Q23. For FY24 YTD, the total value of share buybacks is 6.9 trillion JPY in 1Q24, the highest amount for the period of 2015-24, growing at 69% YoY.
  • Financials: With reflation returning, we expect nominal GDP growth to re-accelerate relative to the past two decades. Financials, and particularly banks, are among the most sensitive sectors to an improvement in nominal growth.
  • Technology: Japan is one of the global leaders at manufacturing specialized semiconductor capital equipment, components and tools for the industry. In some cases, Japanese producers have a near monopoly in specific elements of the semiconductor supply chain. With increased capex driven by shifts in global semiconductor supply chains (which benefits Japan), rapidly expanding investments in artificial intelligence advancements, and a nascent cyclical recovery, the sector remains well-positioned for above-market earnings growth in the years to come. 
  • Industrials: After an 18-month downcycle in global manufacturing, we are finally seeing signs of recovery via U.S. ISM and global manufacturing PMIs. Historically, Japanese industrial companies that specialize in manufacturing capital equipment, robotics, and machinery see an uptick in new orders that results in accelerating sales and expanding margins when global manufacturing PMIs rise.
  • Real Estate: Reflation is driving property prices higher in Japan, particularly in the main economic growth engines like Tokyo. Owners of prime real estate stand to benefit from asset revaluation, property sales, and increased rents.

The JPY has weakened substantially both against the dollar and on a trade-weighted basis. As the only G10 currency with near-zero interest rates, the JPY has been widely used as a funding currency and dominated by moves in global yields. As shown in the chart below, USDJPY has closely followed U.S. yields since the Fed embarked on the tightening cycle. 

USDJPY HAS CLOSELY FOLLOWED U.S. YIELDS SINCE THE FED EMBARKED ON THE TIGHTENING CYCLE

(LHS) USDJPY; (RHS) 10-year U.S. Treasury yield, %

Source: Bloomberg Finance L.P. Data as of May 2024.
The line chart shows the USDJPY exchange rate and the 10-year U.S. Treasury (UST) yield have a close correlation, meaning USDJPY tend to closely follow UST yield and move together in the same direction over time. The chart plots the relationship between USDJPY and 10-year UST yield from 2021 to May 2024. 10-year UST yield started at 0.96% in January 2021 and has increased steadily to 4.24% in October 2022. This was followed by USDJPY, which also rose from 103.2 in January 2021 to ~150 in October 2022. 10-year UST yield experienced a slight decline from 4.24% in October 2022 to 3.37% in January 2023. Similarly, USDJPY fell from ~150 in October 2022 to 127.8 in January 2023. From January 2023 to May 2024, 10-year UST yield increased from 3.37% in January 2023 to 4.61% in May 2024. This was followed closely by USDJPY, which also saw an increase from 127.8 in January 2023 to 157.6 in May 2024.

We expect the JPY to stay on the weak side until U.S. rates decline substantially. The JPY’s negative carry against the USD (>5%) is so substantially wide that even if U.S. rates stay range-bound, the JPY could continue to weaken over time. Recent direct FX interventions are an attempt to stem sharp volatility in the currency. However, unilateral FX interventions are often unsustainable and unlikely to reverse the trend over the longer term. A potential risk scenario of a persistently weaker currency and higher energy prices may cause the BoJ to raise rates faster.

These cross currents and uncertainties are why we are generally neutral on JPY from a trading perspective. We continue to favor borrowing JPY to invest into Japanese equities or doing so on an FX-hedged basis.

We remain positive on South Korean and Taiwanese equities and continue to see tactical opportunities. These markets stand to disproportionately benefit from the strong semiconductor cycle centered around AI. Corporate development of AI capabilities could drive significant multi-year growth through rising capex, and we see the global semiconductor space potentially growing to US$1 trillion by 2030. Cyclical semiconductor demand could also see a recovery as inventory levels have normalized.

TAIWAN AND SOUTH KOREA’S EXPORT OUTLOOKS ARE IMPROVING

LHS: Exports (year-over-year %, 3-month moving average) RHS: Manufacturing orders to inventories PMI

Source: Taiwan Ministry of Finance, Korea Customs Service, S&P Global, Haver Analytics. Data as of April 2024.
The chart shows the year-over-year percentage change in merchandise exports, 3-month moving average (left vertical axis) and the manufacturing orders to inventories PMI (right vertical axis) for both Taiwan and South Korea from 2014 to 2024. Taiwan and Korea’s merchandise exports and manufacturing orders to inventories PMI tend to move in tandem over time. Taiwan and South Korea’s manufacturing orders to inventories PMIs exhibited similar fluctuations from 2014 to 2019 with a noticeable dip in 2020. Manufacturing orders to inventories PMI of both countries quickly rebounded, from 0.67 for Taiwan and 0.699 for Korea in May 2020 to 1.22 and 1.16 respectively in November 2020. This was followed by a decline in manufacturing to orders PMI for both South Korea and Taiwan. Manufacturing to orders PMI for South Korea fell from 1.24 in March 2021 to 0.86 in August 2022. Taiwan’s manufacturing to orders PMI experienced a similar trend, falling from 1.05 in February 2023 to 0.75 in August 2022. From August 2022 to April 2024, manufacturing orders to inventories PMIs for South Korea and Taiwan have been improving from 0.86 and 0.75 to 1.04 and 1.0 respectively. Taiwan and South Korea merchandise exports, represented by the bars, displayed close correlation as well. Similar to manufacturing orders to inventories PMIs, South Korea and Taiwan’s merchandise exports exhibited similar fluctuations from 2014 to 2019 with a noticeable decline in 2020 when merchandise exports growth for both countries fell to negative territory during the covid-19 pandemic. From May 2020 to June 2021, there was a sharp recovery in South Korea and Taiwan’s merchandise exports. South Korea’s merchandise exports growth rose from -2.24% in May 2020 to 37.4% in June 2021. Taiwan’s merchandise exports growth rose from -17.2% in May 2020 to 42.1% in June 2021. This was followed be a steady decline in merchandise exports growth for both countries from June 2021 to April 2023. South Korea and Taiwan’s merchandise exports growth fell from 42.1% and 37.3% in June 2021 to -14.8% and -16.1% in May 2023 respectively. Merchandise exports growth for both South Korea and Taiwan bottomed in June 2023 and have been on an uptrend since, increasing to 9.57% and 13.49% respectively in April 2024.

In Korea, capex and production cutbacks in the DRAM (Dynamic Random Access Memory) industry have started to bear fruit. Contract prices for DRAM have been rising, with further increases likely as end-markets start to recover. HBM (High Bandwidth Memory) has become a critical component for enabling AI capability, providing fast-growing structural opportunities. We expect solid industry trends and emerging corporate governance reforms to drive an earnings upgrade cycle over the next 12 months, with meaningful valuation re-rating potential in Korean equities.

In Taiwan, the semiconductor industry has continued to benefit from a cyclical demand upturn and new growth drivers due to AI and high-performance computing. This will likely benefit leading edge foundry services. Earnings growth is expected to accelerate through 2024, supported by a number of key product releases.

As of the time of writing, Prime Minister Modi’s Bharatiya Janata Party (BJP) has returned to power for a historic third consecutive term. However, the BJP has failed to cross the simple majority on its own, having to rely on coalition partners. The win was narrower than initial exit polls suggested, which has led to large market swings. This is the first time in the last ten years that the BJP will be running a government without an outright majority in the Lower House. A reduced political mandate and the challenge of managing coalition partners will likely make some reforms more difficult. However, the overall positive macro path is unlikely to be derailed. While we expect the business-friendly environment to continue, there could likely be some re-direction of fiscal funds towards welfare to help low-end consumers and rural areas.

We have consistently reiterated that Indian equities provide unique exposure to an exciting structural high-growth opportunity that translates into sustainable low-teens earnings growth over the next few years. We believe the higher valuation for Indian equities is justified by the relative visibility and quality of earnings growth over the next several years. Near-term, we have also revised our earnings estimates 3-4% higher due to a strong finish to the fiscal year. Whilst more populist spending could feature in the new budget, the investment-led focus and business-friendly environment is expected to be maintained. We initiate a June 2025 outlook of 2,800-2,950 and reiterate our view of a strategic long-term ‘overweight’ towards India, and would be buyers of dips in the market. 

MSCI India is up ~33% over the last 12 months and is amongst the world’s best performing markets. Bouts of volatility such as the 3-5% pullbacks in both March and May offered opportunities to add or initiate exposure. Foreign ownership of Indian equities also remains low relative to history. Flows have been sharply negative since April with about US$4bn of outflows, so some money has already been taken off the table. We see this post-election pullback as an attractive entry point. Investors have to keep in mind that India has been one of the most consistent markets in terms of high corporate earnings growth, and the overall growth outlook is largely unchanged as a result of this election. 

INDIA HAS A DECENT TRACK RECORD POST GENERAL ELECTIONS

Historical Nifty 50 performance before/after the Indian general election, in %

Source: Bloomberg Finance L.P., J.P. Morgan Investment Bank. Data as of December 2023. 
The table shows the historical performance of Nifty 50 before and after the Indian general election in percentage terms. The table below consists of columns labeled -6M, -3M, -1M, +1M, +3M and +6M, indicating the time periods of 6 months, 3 months, and 1 month before and after the election, respectively. Each row corresponds to a different election period, spanning from 1991 to 2019. Pre-election periods show a mix of positive and negative returns, but median return is positive 6 months, 3 months and 1 month before elections albeit diminishing as we approach elections, delivering 13.2%, 13.6% and 3.5% respectively. The median values post-election also indicate a pattern of positive returns. Post-election periods, especially 3 months and 6 months after election, showed positive median values of 9.0% and 8.4% respectively, suggest a trend of improvement or stability following the elections.

Current volatility is presenting an opportunity as investors re-focus on attractive domestic fundamentals. Historically, the Indian equity market has returned high single-digits 3-6 months after elections.

Just as exports are improving and the regional outlook is looking up, investors need to keep a close eye on rising trade tensions. Though much of the recent focus has been on China’s excess capacity and rapid increase in higher value added exports, there are two potential risks that could impact the broader region. The first is whether the U.S. looks to broaden measures to prevent trade re-routing. Part of the reason why ASEAN trade to the U.S. has increased is the re-routing of Chinese-produced goods through the region. There are also reports that trade provisions could look more closely at preventing China from using other countries where the U.S. has free trade agreements as a base of production, to get around tariffs. Lastly, trade looks to feature heavily in the upcoming U.S. elections, with President Biden already increasing tariffs and former President Trump threatening a substantial rise in tariffs as part of his policy platform. With trade so integral to Asia – any broadening out or substantial increase in protectionism is a risk to the region.

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Index definitions

The Purchasing Managers' Index (PMI) is an indicator of the prevailing direction of economic trends in the manufacturing and service sectors.

The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services.

The Tokyo Stock Price Index (TOPIX) is an important stock market index for the Tokyo Stock Exchange in Japan, which tracks the entire market of domestic companies and covers most stocks in the Prime Market and some stocks in the Standard Market.

The U.S. ISM manufacturing index, also known as the purchasing managers' index (PMI), is a monthly indicator of U.S. economic activity based on a survey of purchasing managers at more than 300 manufacturing firms.

The MSCI India Index is designed to measure the performance of the large and mid cap segments of the Indian market. With 136 constituents, the index covers approximately 85% of the Indian equity universe.

The NIFTY 50 is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. Nifty 50 is owned and managed by NSE Indices, which is a wholly owned subsidiary of the NSE Strategic Investment Corporation Limited.

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This material is for information purposes only, and may inform you of certain products and services offered by private banking businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS

Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g., equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

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Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/ reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.

Your investments and potential conflicts of interest

Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, “J.P. Morgan”) have an actual or perceived economic or other incentive in its management of our clients’ portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client’s account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment products purchased for a client’s portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account.

Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward-looking views in order to meet the portfolio's investment objective.

As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations.

While our internally managed strategies generally align well with our forward-looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios.

The Six Circles Funds are U.S.-registered mutual funds managed by J.P. Morgan and sub-advised by third parties. Although considered internally managed strategies, JPMC does not retain a fee for fund management or other fund services.

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In the United States, bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank-managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPM. Products not available in all states.

In Germany, this material is issued by J.P. Morgan SE, with its registered office at  Taunustor 1 (TaunusTurm), 60310 Frankfurt am Main, Germany, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB). In Luxembourg, this material is issued by J.P. Morgan SE – Luxembourg Branch, with registered office at European Bank and Business Centre, 6 route de Treves, L-2633, Senningerberg, Luxembourg, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Luxembourg Branch is also supervised by the Commission de Surveillance du    Secteur Financier (CSSF); registered under R.C.S Luxembourg B255938. In the United Kingdom, this material is issued by J.P. Morgan SE – London Branch, registered office at 25 Bank Street, Canary Wharf, London E14 5JP, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – London Branch is also supervised by the Financial Conduct Authority and Prudential Regulation Authority. In Spain, this material is distributed by J.P. Morgan SE, Sucursal en España, with registered office at Paseo de la Castellana, 31, 28046 Madrid, Spain, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE, Sucursal en España is also supervised by the Spanish Securities Market Commission (CNMV); registered with Bank of Spain as a branch of J.P. Morgan SE under code 1567. In Italy, this material is distributed by J.P. Morgan SE – Milan Branch, with its registered office at Via Cordusio, n.3, Milan 20123,  Italy, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Milan Branch is also supervised by Bank  of Italy and the Commissione Nazionale per le Società e la Borsa (CONSOB); registered with Bank of Italy as a branch of J.P. Morgan SE under code 8076; Milan Chamber of Commerce Registered Number: REA MI 2536325. In the Netherlands, this material is distributed by  J.P. Morgan SE – Amsterdam Branch, with registered office at World Trade Centre, Tower B, Strawinskylaan 1135, 1077 XX, Amsterdam, The Netherlands, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Amsterdam Branch is also supervised by De Nederlandsche Bank (DNB) and the Autoriteit Financiële Markten (AFM) in the Netherlands. Registered with the Kamer van Koophandel as a branch of J.P. Morgan SE under registration number 72610220. In Denmark, this material is distributed by J.P. Morgan SE – Copenhagen Branch, filial af J.P. Morgan SE, Tyskland, with registered office at Kalvebod Brygge 39-41, 1560 København V, Denmark, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Copenhagen Branch, filial af J.P. Morgan SE, Tyskland is also supervised by Finanstilsynet (Danish FSA) and is registered with Finanstilsynet as a branch of J.P. Morgan SE under code 29010. In Sweden, this material is distributed by J.P. Morgan SE – Stockholm Bankfilial, with registered office at Hamngatan 15, Stockholm, 11147, Sweden, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Stockholm Bankfilial is also supervised by Finansinspektionen (Swedish FSA); registered with Finansinspektionen as a branch of J.P. Morgan SE. In Belgium, this material is distributed by J.P. Morgan SE – Brussels Branch with registered office at 35 Boulevard du Régent, 1000, Brussels, Belgium, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB);  J.P. Morgan SE Brussels Branch is also supervised by the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA) in Belgium; registered with the NBB under registration number 0715.622.844. In Greece, this material is distributed by J.P. Morgan SE – Athens Branch, with its registered office at 3 Haritos Street, Athens, 10675, Greece, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Athens Branch is also supervised by Bank of Greece; registered with Bank of Greece as a branch of J.P. Morgan SE under code 124; Athens Chamber of Commerce Registered Number 158683760001; VAT Number 99676577. In France, this material is distributed by J.P. Morgan SE – Paris Branch, with its registered office at 14, Place Vendome 75001 Paris, France, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB) under code 842 422 972; J.P. Morgan SE – Paris Branch is also supervised by the French banking authorities the Autorité de Contrôle Prudentiel et de Résolution (ACPR) and the Autorité des Marchés Financiers (AMF). In Switzerland, this material is distributed by J.P. Morgan (Suisse) SA, with registered address at rue du Rhône, 35, 1204, Geneva, Switzerland, which is authorised and supervised by the Swiss Financial Market Supervisory Authority (FINMA) as a bank and a securities dealer in Switzerland.

This communication is an advertisement for the purposes of the Markets in Financial Instruments Directive (MIFID II) and the Swiss Financial Services Act (FINSA). Investors should not subscribe for or purchase any financial instruments referred to in this advertisement except on the basis of information contained in any applicable legal documentation, which is or shall be made available in the relevant jurisdictions (as required).

In Hong Kong, this material is distributed by JPMCB, Hong Kong branch. JPMCB, Hong Kong branch is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Hong Kong, we will cease to use your personal data for our marketing purposes without charge if you so request. In Singapore, this material is distributed by JPMCB, Singapore branch. JPMCB, Singapore branch is regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided to you by JPMCB, Hong Kong/Singapore branch (as notified to you). Banking and custody services are provided to you by JPMCB Singapore Branch. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. You are advised to exercise caution in relation to this document. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. For materials which constitute product advertisement under the Securities and Futures Act and the Financial Advisers Act, this advertisement has not been reviewed by the Monetary Authority of Singapore. JPMorgan Chase Bank, N.A., a national banking association chartered under the laws of the United States, and as a body corporate, its shareholder’s liability is limited.

With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. We may offer and/or sell to you securities or other financial instruments which may not be registered under, and are not the subject of a public offering under, the securities or other financial regulatory laws of your home country. Such securities or instruments are offered and/or sold to you on a private basis only. Any communication by us to you regarding such securities or instruments, including without limitation the delivery of a prospectus, term sheet or other offering document, is not intended by us as an offer to sell or a solicitation of an offer to buy any securities or instruments in any jurisdiction in which such an offer or a solicitation is unlawful. Furthermore, such securities or instruments may be subject to certain regulatory and/or contractual restrictions on subsequent transfer by you, and you are solely responsible for ascertaining and complying with such restrictions. To the extent this content makes reference to a fund, the Fund may not be publicly offered in any Latin American country, without previous registration of such fund´s securities in compliance with the laws of the corresponding jurisdiction. 

References to “J.P. Morgan” are to JPM, its subsidiaries and affiliates worldwide. “J.P. Morgan Private Bank” is the brand name for the private banking business conducted by JPM. This material is intended for your personal use and should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission. If you have any questions or no longer wish to receive these communications, please contact your J.P. Morgan team.

JPMorgan Chase Bank, N.A. (JPMCBNA) (ABN 43 074 112 011/AFS Licence No: 238367) is regulated by the Australian Securities and Investment Commission and the Australian Prudential Regulation Authority. Material provided by JPMCBNA in Australia is to “wholesale clients” only. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Corporations Act 2001 (Cth). Please inform us if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.

JPMS is a registered foreign company (overseas) (ARBN 109293610) incorporated in Delaware, U.S.A. Under Australian financial services licensing requirements, carrying on a financial services business in Australia requires a financial service provider, such as J.P. Morgan Securities LLC (JPMS), to hold an Australian Financial Services Licence (AFSL), unless an exemption applies. JPMS is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (Cth) (Act) in respect of financial services it provides to you, and is regulated by the SEC, FINRA and CFTC under US laws, which differ from Australian laws. Material provided by JPMS in Australia is to “wholesale clients” only. The information provided in this material is not intended to be, and must not be, distributed or passed on, directly or indirectly, to any other class of persons in Australia. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Act. Please inform us immediately if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.

This material has not been prepared specifically for Australian investors. It:

  • may contain references to dollar amounts which are not Australian dollars;
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  • may not address risks associated with investment in foreign currency denominated investments; and
  • does not address Australian tax issues.

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JPMorgan Chase Bank, N.A. and its affiliates (collectively "JPMCB") offer investment products, which may include bank-managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC ("JPMS"), a member of FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states. Please read the Legal Disclaimer in conjunction with these pages.

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