Rising yields, oil prices put Asian equities in ‘tug of war’ with AI boom: HSBC

Asian equities are navigating a "tug of war" between rising oil prices, higher bond yields, and the ongoing AI boom, according to HSBC strategist Herald van der Linde. The strategist became more optimistic about Asian equities after the latest US Federal Reserve rate hike in September, as many market participants had already factored in the impact of higher interest rates. Historically, Asian equities tend to underperform before peaking once rates start to rise.

However, the AI boom remains the region's dominant growth story, making it crucial to differentiate between various markets rather than treating Asia as a single entity. Currency risks, especially for US dollar-based investors, also play a significant role in equity returns. Markets with currencies that have depreciated substantially against the US dollar, such as Indonesia and India, face a higher hurdle in delivering attractive returns.

South Korea and Taiwan are seen as beneficiaries of the AI boom, with South Korea experiencing speculative activity that cooled off following a market "washout". Taiwan, which benefited from the AI boom led by TSMC, showed less speculative activity. India, while interesting, is overshadowed by the AI trade in North Asia, leaving investor demand "lukewarm at best". Japan faces pressure from China's automobile industry, while opportunities exist in high-end AI semiconductors and banks.

ASEAN presents a mixed bag, with Singapore benefiting from relatively higher interest rates, Malaysia and Thailand from data-center investment, and China's mainland economy being constrained by weak consumer confidence and the property market. Despite this, biopharmaceuticals and banks in China show promise. HSBC remains "risk on", with van der Linde emphasizing the importance of innovation and entrepreneurship for Asia's long-term growth.