Market overview
Asia Pacific equity markets rebounded robustly in the second quarter, driven by diverse regional dynamics, despite ongoing geopolitical uncertainty. The Korean and Indian markets showed the strongest recovery. The Korean stock market has rallied sharply since the inauguration of a new president following the impeachment of his predecessor. India’s market gained momentum, driven mainly by large-cap stocks and growing interest in small caps. China and Hong Kong also rebounded from their lows, stimulated by major IPOs and growing investor optimism about economic recovery.
Meanwhile, Southeast Asian nations benefited from companies’ efforts in supply chain diversification. Taiwan experienced volatility amid easing US-China trade tensions but was bolstered by steady demand in AI-related sectors.
Heightened US-China trade tensions initially weighed on investor sentiment, particularly on export-dependent economies such as Taiwan and Southeast Asia. However, some countries benefited from supply chain diversification away from China to mitigate tariff risks, fuelling growth in manufacturing hubs such as Vietnam and Indonesia. Ongoing trade negotiations have eased some pressures.
Fund activity
During the quarter, the fund delivered a positive return but underperformed its benchmark. Sector-wise, the strongest contributions to relative return came from financials, technology and industrials, though gains were offset by underperformance in other sectors including consumer discretionary and communications. At the stock level, overweight positions in SK Square and SK Hynix were the largest contributors to relative performance, while Alibaba and Meituan were among the main detractors.
In terms of portfolio changes, we added a position in SK Square, which is a portfolio management company in South Korea, due to its strong growth potential and accelerating corporate reforms. We added a position in Korean Air, because of growing cargo demand and its market-leading position, and bought QBE Insurance due to growing potential in the global insurance market and its solid underwriting performance. We sold out of Goodman Group due to concerns over its reliance on continued growth in logistics real estate. We also sold out of China Resources Land as there are concerns over China’s struggling property market and tightening regulations. Lastly, we sold our holding in Woodside Energy owing to increasing regulatory and environmental pressures, together with long-term uncertainty around fuel demand.
Outlook
Our view of the Asia Pacific market remains optimistic, since it is driven by strong domestic fundamentals, attractive valuations and ongoing structural reforms. Despite external headwinds such as US-China trade tensions and global economic uncertainties, many Asian markets are poised to benefit from shifting global supply chains, robust domestic consumption and advancements in technology sectors such as AI. China’s stimulus measures are expected to support economic growth, while, to us, India’s expanding middle class and digital infrastructure offer promising investment opportunities. We believe that valuations in Asia remain compelling, with the region trading at a discount compared to the US market, presenting an attractive entry point for long-term investors.
However, we also consider that investors should remain vigilant to potential risks, including geopolitical developments and currency fluctuations, that could impact market performance.
Important information
Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate. Currency fluctuations can also affect performance.
The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice.
This document is issued for information only by Canada Life Asset Management. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available in the literature section.
