What’s the outlook for Asian equities?

Earnings expectations dim across the region, while China’s reforms remain a bright spot

Time to read: 4 min

The synchronized global recovery is being felt across Asia, but the level of opportunity varies by region. Below, I discuss the macro environment as well as the Earnings, Quality and Valuation (EQV) statistics that influence my team’s bottom-up stock-picking decisions.

Japan: Earnings are a bright spot, but quality is lacking

The Japanese stock market reached a new 25-year high in 2017, and the Nikkei 225 Index posted a 10% return in the fourth quarter.1 However, even with a 22% full-year return for the index, Japan was the weakest international region in 2017,1 and it’s the largest underweight of Invesco International Growth Fund.

On the bright side:

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Latin America: Will politics overshadow GDP growth?

Earnings expectations are improving in Brazil, but high uncertainty hinders Mexican growth

Time to read: 2 min

On the back of a broad pickup in Latin American economic activity, real gross domestic product (GDP) growth is expected to accelerate this year.1 However, continued political uncertainty and critical elections in Mexico and Brazil could weigh on the region. With market exposure in both countries, what are the key areas the Invesco International Growth Fund team will be watching in 2018?

Brazil: Earnings expectations are on the rise, but political doubts linger

Despite a year of political turmoil and delayed reform, Brazil’s fundamentals showed signs of

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Japan’s economy is robust, so why are we underweight?

Research reveals few opportunities for high returns — and even fewer that are well-priced

Time to read: 2 min

By regional standards, the Japanese economy is robust — gross domestic product has expanded for six consecutive quarters, the longest expansionary period in 11 years. Exports continue to rise, unemployment is low, and there are signs that deflation may be breaking as consumer prices are starting to rise.

And yet, Japan is the largest underweight within Invesco International Growth Fund, constituting 6.09% of the portfolio as of Sept. 30, 2017, compared with 16.05% for the MSCI All Country World ex-U.S. Growth Index. I’m often asked why this is, and my answer is always the same: It comes down to the quality of the businesses and the valuations.

Doing the math on opportunities in Japan

To illustrate what I mean, consider this:

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Global stocks: When is an opportunity not an opportunity?

Markets are rallying in sync worldwide, but valuations in certain areas carry undue risks

Time to read: 3 min

We’re now in the eighth year of a global bull market, and the positive effects are being felt in all regions. The Organization for Economic Cooperation and Development expects gross domestic product (GDP) for all of its member countries to grow in 2017 — a feat that has not occurred since 2007.1 But a synchronized rally doesn’t mean that all opportunities are equal. To illustrate the differences that the Invesco International and Global Growth team is seeing, I’m going to highlight two areas: Asia and Brazil.

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Asian markets: Carrying some positive momentum into 2017

Is this the beginning of a long-awaited up cycle?

Last November, the Invesco International and Global Growth team reported that in Asia ex-Japan, the building blocks were in place to shore up top-line growth. Our outlook for Earnings, Quality and Valuation (EQV) was cautiously positive. 2016 marked the first time in five years where earnings forecasts did not collapse at year-end, and an upward bias to earnings forecasts has continued into 2017. Is this the beginning of a new earnings growth cycle?

For years, slowing top-line growth in Asia, combined with an inability to raise prices, had driven consistently negative earnings revisions. So far, 2017 is proving to be different. Earnings forecasts are being revised

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