Just as everyone begins to come back from holidays, we thought it would be a good time to remind ourselves how equity investors with specific geographical overweights may have fared in the race for healthy returns.
The results are in – and who would have predicted at the start of the year that at the top of the table would be… the MSCI Korea Index.
Figure 1: Asian equities outperform
With most Korean companies still trading below book, and global investors underweight, we see scope for continued re-rating.
1) Korea: Untapped potential
Even putting this year’s stellar returns to one side, we believe Korean equities have further to go. Over 70% of the index has a price-to-book of under 1X, while over 30% of the index has a P/E ratio of under 10X, leaving Korea among the cheapest equity markets globally.
Here, we believe the question of corporate governance continues to loom large as a source of future tailwinds. We expect further reforms, including improved protections for minority shareholders, inheritance tax changes, and incentives for companies with higher payout ratios or those trading below book value.
With most Korean companies still trading below book, and global investors underweight, we see scope for continued re-rating. The government is actively exploring additional measures such as treasury share cancellations and tax incentives for dividends—reinforcing our constructive outlook.
2) China: Selective strength amid transition
China stays a core overweight. Despite near-term challenges – including deflationary pressures and higher US tariffs – we see attractive opportunities supported by low valuations, stabilising earnings, and rising capital efficiency.
The economy is undergoing a meaningful transition: real estate’s share of GDP is declining, while high-tech and advanced manufacturing are gaining ground. China is emerging as a global leader in electric vehicles (EVs), consumer electronics, renewable energy, and semiconductors. In AI, it combines world-class hardware with strong software capabilities – second only to the US.
We are encouraged by rising dividends and buybacks, signalling a more shareholder-friendly approach. While macro sentiment is still cautious, the index composition differs significantly from the broader economy – creating opportunities for selective, bottom-up investors.
3) Portfolio valuations: Discipline drives opportunity
As contrarian investors, we focus on price discipline – seeking undervalued companies with strong fundamentals. While we can’t control market outcomes, we can control the price we pay.
Today, our portfolio trades at a price-to-earnings ratio of 10 and a price-to-book of 1. Our top 10 holdings are high-quality businesses trading at compelling valuations. This combination of low entry multiples and improving sentiment in our key markets gives us confidence in the outlook for 2H 2025 – and positions us well to deliver long-term value for our investors.
Find out more about Asia ex-Japan.
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1 Our relative underweight to India (-0.8% performance year to date) has also been beneficial.
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