Mid-point review: Are there still opportunities for growth in Asia?

After a strong first half, we assess earnings, quality and valuation characteristics for the region

The first half of the year saw strong performances across Asia. The MSCI Asia ex-Japan Index gained 18% (the fifth-highest first-half performance in the index’s 30-year lifespan), and Japan grew 14%, as measured by the MSCI All Country World Index ex-US Growth benchmark.1 What does such strong absolute performance mean for our team’s regional outlook? Below, the Invesco International and Global Growth team assesses the Asian landscape through our earnings, quality and valuation (EQV) lens, which we believe can reward investors over the long term.

Asia ex-Japan: Still room for opportunity

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Three reasons why we’re bullish on Brazil

Despite political turmoil, we see long-term positives for Brazilian stocks

Just as Brazil seemed to be recovering from its worst recession in history, it took another hit last May. A secret recording surfaced of President Michel Temer allegedly discussing a scheme to pay hush money to jailed former speaker of the lower house, Eduardo Cunha. Since then, President Temer was cleared in early June of campaign finance violations, but was charged in late June with corruption related to a bribery scheme. This ongoing political turmoil has delayed the approval of much-needed pension and other reforms. And yet, Brazil’s current fundamentals are much stronger than at year-end 20161, with a benign inflation outlook, strong companies and a healthy balance of payments.

For us, as bottom-up investors, all of this adds up to potential opportunity. Below, I discuss the positive signs that the Invesco International and Global Growth team sees in Brazil.

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Asian contrast: Japan falters as China transitions economy

Trump administration policies could potentially rattle economies of both countries

Jason_Mark_sm_150dpi_RGBAbsent the major reform investors have been hoping for, Japan’s economy remains largely stagnant, with the yen weakening over the last quarter of 2016. By contrast, China, along with the rest of Asia, seems poised for another year of relatively stable growth. The policies of US President Donald Trump, however, could potentially spur volatility in both economies. Let’s take a closer look.

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Negative quarter in Japan, China accompanied by signs of optimism

Yen rises post-Brexit, while China’s economy takes steps to become consumer-driven

Jason_Mark_sm_150dpi_RGBMarkets were down in Japan and China in the second quarter. While it appears Japan will continue to show weakness in the short term, there were several bright spots in China that give us cause for optimism.

Yen strengthens post-Brexit

The Invesco International and Global Growth team continues to be strongly underweight Japan. During the quarter, the Nikkei 225 Index was down over 7% when measured by the yen. However, if we consider a US dollar return, the Nikkei was actually up just over 1%.1

So why did the yen strengthen over 8% in the quarter?

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