According to a recent report by BofA Securities, 10% of fund managers polled by the research and trading firm said they were still underweight on Indian stocks over a 12-month period, placing India among the top three least preferred Asian stock markets. Furthermore, as per the results of a study conducted by BofA Securities, global fund managers anticipate an average return of less than 5% from Asia-ex-Japan stocks over the course of the next year.
BofA cited that 111 panelists with USD 214 billion in assets under management (AUM) answered the regional Fund Manager Survey (FMS) questions between January 10 and January 16, while 182 panelists with USD 513 billion in AUM answered the global FMS questions. According to survey results, the only two Asian countries where fund managers are more underweight in comparison to Indian stocks are China (with a net 23 percent fund managers) and Thailand (13 percent). According to BofA Securities, the September strong surge failed to hold onto the gains, putting investor patience to the test once more in China.
"It should come as no surprise that growth optimism declined even more, with only 10% of respondents anticipating an improvement in the economy, compared to 61% in October. Allocations plummeted to near survey lows, while calls for structural bearishness surged to near survey highs. Less than 25% of families feel comfortable increasing their exposure to additional indicators of easing, and FMS believes that cash hoarding by households is here to stay," BofA Securities stated.
However, with a net 53% of respondents and fund managers still being overweight, Japan was the most popular area in Asia, followed by Taiwan (20%) and South Korea (3). "The outlook for Japan is still positive, as 20% of respondents to the BofA survey anticipate double-digit returns from stocks over the next 12 months," the organization stated.
Tepid 2025
BNP Paribas Securities analysts also predict that Indian stocks will have a modest 2025 and that returns will stay in the single digits for the upcoming year. BNP Paribas Securities analysts see other headwinds (high food inflation, high US bond yields, rising dollar index, and firming up commodity prices) that are likely to keep market sentiment in check for the majority of the year, even though high-frequency indicators in India are beginning to bottom out.
Unless there are indications of a robust comeback in growth, there should be little desire to purchase pricey developing market stocks. According to BofA Securities, "the bearishness on the economy rubbed off on return expectations with a majority expecting less than 5% returns in the APAC ex-Japan equities in the next 12 months." The Indian equity market is still being supported by strong domestic inflows.
According to the research's results, semiconductors account for the majority of regional sector allocations, with growing allocations to banks and consumer staples coming in second and real estate and materials coming in last. Also BofA Securities stated, "AI/SEMI, dividends/buybacks, and the internet are popular themes in China, while in India, IT services, which benefit from the declining rupee, soar to the top with infra coming next. We don't think this poses a serious concern.”
Kunal Vora, Head of India Equity Research at BNP Paribas India, recently wrote, "We see low likelihood of valuation multiples rerating in 2025 and expect market returns to track or slightly lag earnings growth."
Markets in Asia-Pacific
According to the BofA, the APAC ex-Japan economic outlook remained at its second-weakest level in two years, with 3 percent of participants predicting a poorer economy 12 months from now, compared to 39% who predicted a stronger economy in November.
