The Case for Asian Equities

Australian Fund Monitors

09 March 2021

Asia represents nearly one-third of global GDP, but Australian investors continue to allocate a relatively small amount towards Asian equities.

We believe there is a case to be made for investing in Asian equities, noting there has been a belief that Asian markets are potentially more volatile and are therefore riskier.

However, for the two years to 31 January 2021, Asian markets performed more strongly than the Australian and global markets. 

AFM's Asia Pacific ex-Japan benchmark returned 16 per cent for the two years compared to 13.5 per cent for the Global Equity benchmark and 9.9 per cent for the ASX 200 Total Return benchmark. 

The standard deviation for the Asian benchmark was also lower than both the global benchmark and the Australian benchmark with volatility of 11 per cent, 12.1 per cent and 20.2 per cent respectively. 

The maximum drawdown for the ASX 200 Total Return benchmark was -26.8 per cent compared to -7.89 per cent for the Asia Pacific ex-Japan benchmark. The maximum drawdown for the global market was also comparably large at -13.2 per cent.

Looking at actively managed Asian equity funds, seven of the 24 Asian equity funds on AFM beat the index. 

On average long-only funds performed marginally better than long/short and market neutral funds over the last two years. However, the absolute return strategies performed better in the last 12 months. 

Funds with a high exposure to India had struggled to add value, versus the overall Asia Pacific ex-Japan index, while the two funds on the AFM database that focus on China returned 24.5 per cent and 2.67 per cent for the two years. 

Asian equity funds have an average correlation of 0.51 to the ASX 200 Total Return benchmark and 0.5 to the Global Equity benchmark, highlighting their potential to provide good diversification.