Diversification
Selective APAC markets offer diversification benefits relative to the industrial cycles of China and the US.
The Investment Toolbox
Investors are required to construct their portfolios meticulously, balancing risk and return to achieve the precise mix of asset classes and sectors.
While some investors prefer low-cost passive strategies to acquire broad exposure to various asset classes, the unique and diverse assets available in the APAC markets are not a one-size-fits-all proposition. Each market within the APAC region offers specific opportunities and risks.
Instead of a broad-brush approach to APAC markets, we believe a thoughtful, more targeted strategy is warranted.
Diversification
Volatility Challenges
Volatility is a common challenge across most APAC equity and bond markets. However, low correlation relative to individual market benchmarks may mitigate this risk.
Value Opportunities
Value opportunities are notable in China, Taiwan and South Korea equity markets. There are no broad-based opportunities in hard and local currency bonds across all markets except India.
Income Opportunities
Inflation risks in Asia are relatively more benign compared with developed markets. Accordingly, duration risks may be lower, and the higher yields could potentially provide greater returns in the form of income.
Growth Opportunities
Significant growth potential is observed in the equity markets of India and Taiwan, as well as in hard currency bonds in India, South Korea and Indonesia and local currency bonds in China and India.
Risk Efficiency
Risk efficiency comparisons highlight limited opportunities, favoring the equity markets of India, Taiwan, and Japan, and the local currency debt markets of China and India.
Uncover APAC's Investment Potential
Our in-depth research offers actionable insights into APAC’s economic landscape, investment strategies, and emerging opportunities.
Active, selective strategies may be best to target APAC opportunities
Investors trying to enhance a globally balanced portfolio can find a variety of opportunities in APAC markets.
The most attractive investment opportunities are in a handful of APAC markets and in specific assets. Given the dispersion in APAC asset opportunities and geopolitical risks, we believe it is important to consider specific strategies rather than a broad overweight to the region.
Below, we illustrate the opportunities by market. Blue shading indicates more attractive opportunities. The more quadrants filled, the better the score.
Explore the Data by Market and Asset Class
Each APAC Market Offers a Different Combination of Opportunities
- Equity
- Hard Currency Bonds
- Local Currency Bonds
Equity
| Economy | Returns | Volatility | Efficiency | Valuations | Diversification | Income |
|---|---|---|---|---|---|---|
| Australia | 0.42 | 1.01 | 0.41 | 0.97 | 0.25 | 2.01 |
| India | 1.82 | 1.02 | 1.78 | 1.41 | 0.54 | 0.59 |
| China | -0.95 | 1.52 | -0.62 | 0.76 | 0.54 | 0.97 |
| South Korea | 0.68 | 1.12 | 0.60 | 0.77 | 0.80 | 1.01 |
| Taiwan | 1.43 | 1.02 | 1.39 | 0.90 | 0.88 | 1.61 |
| Philippines | 0.56 | 1.18 | 0.47 | 0.99 | 0.73 | 0.88 |
| Thailand | -0.77 | 1.00 | -0.77 | 1.14 | 0.24 | 1.29 |
| Singapore | -0.34 | 0.93 | -0.37 | 0.91 | 0.70 | 1.82 |
| Indonesia | -0.54 | 1.10 | -0.49 | 0.93 | 0.17 | 1.47 |
| Malaysia | -0.02 | 0.68 | -0.03 | 0.96 | 0.69 | 1.82 |
| Japan | 1.04 | 0.93 | 1.11 | 0.94 | 0.70 | 1.07 |
Australia
| Returns | 0.42 |
| Volatility | 1.01 |
| Efficiency | 0.41 |
| Valuations PE | 0.97 |
| Diversification | 0.25 |
| Income Yield | 2.01 |
India
| Returns | 1.82 |
| Volatility | 1.02 |
| Efficiency | 1.78 |
| Valuations PE | 1.41 |
| Diversification | 0.54 |
| Income Yield | 0.59 |
China
| Returns | -0.95 |
| Volatility | 1.52 |
| Efficiency | -0.62 |
| Valuations PE | 0.76 |
| Diversification | 0.54 |
| Income Yield | 0.97 |
South Korea
| Returns | 0.68 |
| Volatility | 1.12 |
| Efficiency | 0.60 |
| Valuations PE | 0.77 |
| Diversification | 0.80 |
| Income Yield | 1.01 |
Taiwan
| Returns | 1.43 |
| Volatility | 1.02 |
| Efficiency | 1.39 |
| Valuations PE | 0.90 |
| Diversification | 0.88 |
| Income Yield | 1.61 |
Philippines
| Returns | 0.56 |
| Volatility | 1.18 |
| Efficiency | 0.47 |
| Valuations PE | 0.99 |
| Diversification | 0.73 |
| Income Yield | 0.88 |
Thailand
| Returns | -0.77 |
| Volatility | 1.00 |
| Efficiency | -0.77 |
| Valuations PE | 1.14 |
| Diversification | 0.24 |
| Income Yield | 1.29 |
Singapore
| Returns | -0.34 |
| Volatility | 0.93 |
| Efficiency | -0.37 |
| Valuations PE | 0.91 |
| Diversification | 0.70 |
| Income Yield | 1.82 |
Indonesia
| Returns | -0.54 |
| Volatility | 1.10 |
| Efficiency | -0.49 |
| Valuations PE | 0.93 |
| Diversification | 0.17 |
| Income Yield | 1.47 |
Malaysia
| Returns | -0.02 |
| Volatility | 0.68 |
| Efficiency | -0.03 |
| Valuations PE | 0.96 |
| Diversification | 0.69 |
| Income Yield | 1.82 |
Japan
| Returns | 1.04 |
| Volatility | 0.93 |
| Efficiency | 1.11 |
| Valuations PE | 0.94 |
| Diversification | 0.70 |
| Income Yield | 1.07 |
As of March 2024
Source: MSCI, Bloomberg. Analysis by Franklin Templeton.
Based on figures relative to benchmark index for 5-year periods ending March 2024. For Equity MSCI ACWI used as benchmark. For Bonds-HC Bloomberg EM USD Aggregate Index used as benchmark. For Bonds-LC Bloomberg EM Local Currency Government Index used as benchmark.
For equities, the valuation measure was based on price-to-earnings ratios.
For hard currency bonds, the valuation measure was based on option-adjusted spreads. For local-currency bonds, the valuation measure was based on yield-to worst.
The chart is a graphical representation of a relative score for three different asset classes (equities, hard- and local-currency bonds) across six performance attributes (returns, volatility, efficiency, valuations, diversification and income) across 11 different APAC markets. The relative score is represented by the number of filled quadrants in each cell. The more quadrants filled, the better the score. More details are available in Appendix 2: Investment toolbox data and analysis in the downloadable report.
Hard Currency Bonds
| Economy | Returns | Volatility | Efficiency | Valuations | Diversification | Income |
|---|---|---|---|---|---|---|
| Australia | -1.29 | 1.82 | -0.71 | 0.12 | 0.50 | 0.42 |
| India | 3.51 | 0.95 | 3.70 | 0.97 | 0.68 | 0.95 |
| China | -0.49 | 0.74 | -0.66 | 0.81 | 0.68 | 0.87 |
| South Korea | 1.72 | 0.59 | 2.90 | 0.24 | 0.50 | 0.53 |
| Taiwan | 0.51 | 0.99 | 0.51 | 0.31 | 0.52 | 0.58 |
| Philippines | 0.51 | 1.09 | 0.46 | 0.43 | 0.76 | 0.67 |
| Thailand | 0.94 | 1.22 | 0.77 | 0.50 | 0.57 | 0.72 |
| Singapore | 0.84 | 0.97 | 0.87 | 0.10 | 0.51 | 0.40 |
| Indonesia | 2.17 | 1.22 | 1.79 | 0.51 | 0.80 | 0.73 |
| Malaysia | 1.23 | 1.19 | 1.03 | 0.41 | 0.65 | 0.66 |
| Japan | -7.67 | 1.66 | -4.62 | 0.01 | 0.29 | 0.06 |
Australia
| Returns | -1.29 |
| Volatility | 1.82 |
| Efficiency | -0.71 |
| Valuations PE | 0.12 |
| Diversification | 0.50 |
| Income Yield | 0.42 |
India
| Returns | 3.51 |
| Volatility | 0.95 |
| Efficiency | 3.70 |
| Valuations PE | 0.97 |
| Diversification | 0.68 |
| Income Yield | 0.95 |
China
| Returns | -0.49 |
| Volatility | 0.74 |
| Efficiency | -0.66 |
| Valuations PE | 0.81 |
| Diversification | 0.68 |
| Income Yield | 0.87 |
South Korea
| Returns | 1.72 |
| Volatility | 0.59 |
| Efficiency | 2.90 |
| Valuations PE | 0.24 |
| Diversification | 0.50 |
| Income Yield | 0.53 |
Taiwan
| Returns | 0.51 |
| Volatility | 0.99 |
| Efficiency | 0.51 |
| Valuations PE | 0.31 |
| Diversification | 0.52 |
| Income Yield | 0.58 |
Philippines
| Returns | 0.51 |
| Volatility | 1.09 |
| Efficiency | 0.46 |
| Valuations PE | 0.43 |
| Diversification | 0.76 |
| Income Yield | 0.67 |
Thailand
| Returns | 0.94 |
| Volatility | 1.22 |
| Efficiency | 0.77 |
| Valuations PE | 0.50 |
| Diversification | 0.57 |
| Income Yield | 0.72 |
Singapore
| Returns | 0.84 |
| Volatility | 0.97 |
| Efficiency | 0.87 |
| Valuations PE | 0.10 |
| Diversification | 0.51 |
| Income Yield | 0.40 |
Indonesia
| Returns | 2.17 |
| Volatility | 1.22 |
| Efficiency | 1.79 |
| Valuations PE | 0.51 |
| Diversification | 0.80 |
| Income Yield | 0.73 |
Malaysia
| Returns | 1.23 |
| Volatility | 1.19 |
| Efficiency | 1.03 |
| Valuations PE | 0.41 |
| Diversification | 0.65 |
| Income Yield | 0.66 |
Japan
| Returns | -7.67 |
| Volatility | 1.66 |
| Efficiency | -4.62 |
| Valuations PE | 0.01 |
| Diversification | 0.29 |
| Income Yield | 0.06 |
As of March 2024
Source: MSCI, Bloomberg. Analysis by Franklin Templeton.
Based on figures relative to benchmark index for 5-year periods ending March 2024. For Equity MSCI ACWI used as benchmark. For Bonds-HC Bloomberg EM USD Aggregate Index used as benchmark. For Bonds-LC Bloomberg EM Local Currency Government Index used as benchmark.
For equities, the valuation measure was based on price-to-earnings ratios.
For hard currency bonds, the valuation measure was based on option-adjusted spreads. For local-currency bonds, the valuation measure was based on yield-to worst.
The chart is a graphical representation of a relative score for three different asset classes (equities, hard- and local-currency bonds) across six performance attributes (returns, volatility, efficiency, valuations, diversification and income) across 11 different APAC markets. The relative score is represented by the number of filled quadrants in each cell. The more quadrants filled, the better the score. More details are available in Appendix 2: Investment toolbox data and analysis in the downloadable report.
Local Currency Bonds
| Economy | Returns | Volatility | Efficiency | Valuations | Diversification | Income |
|---|---|---|---|---|---|---|
| Australia | -0.83 | 1.77 | -0.47 | 0.61 | 0.64 | 0.61 |
| India | 1.70 | 0.91 | 1.86 | 1.05 | 0.30 | 1.05 |
| China | 2.21 | 0.73 | 3.05 | 0.75 | 0.73 | 0.75 |
| South Korea | -1.83 | 1.72 | -1.06 | 0.63 | 0.71 | 0.63 |
| Taiwan | 0.70 | 0.98 | 0.71 | 0.85 | 0.14 | 0.85 |
| Philippines | 0.40 | 1.11 | 0.36 | 0.85 | 0.54 | 0.85 |
| Thailand | -0.12 | 1.35 | -0.09 | 0.56 | 0.62 | 0.56 |
| Singapore | 0.55 | 0.95 | 0.59 | 0.58 | 0.66 | 0.58 |
| Indonesia | N/A | N/A | N/A | N/A | N/A | N/A |
| Malaysia | 0.73 | 0.98 | 0.75 | 0.90 | 0.63 | 0.90 |
| Japan | -4.92 | 1.62 | -3.04 | 0.08 | 0.32 | 0.08 |
Australia
| Returns | -0.83 |
| Volatility | 1.77 |
| Efficiency | -0.47 |
| Valuations PE | 0.61 |
| Diversification | 0.64 |
| Income Yield | 0.61 |
India
| Returns | 1.70 |
| Volatility | 0.91 |
| Efficiency | 1.86 |
| Valuations PE | 1.05 |
| Diversification | 0.30 |
| Income Yield | 1.05 |
China
| Returns | 2.21 |
| Volatility | 0.73 |
| Efficiency | 3.05 |
| Valuations PE | 0.75 |
| Diversification | 0.73 |
| Income Yield | 0.75 |
South Korea
| Returns | -1.83 |
| Volatility | 0.72 |
| Efficiency | -1.06 |
| Valuations PE | 0.63 |
| Diversification | 0.71 |
| Income Yield | 0.63 |
Taiwan
| Returns | 0.70 |
| Volatility | 0.98 |
| Efficiency | 0.71 |
| Valuations PE | 0.85 |
| Diversification | 0.14 |
| Income Yield | 0.85 |
Philippines
| Returns | 0.40 |
| Volatility | 1.11 |
| Efficiency | 0.36 |
| Valuations PE | 0.85 |
| Diversification | 0.54 |
| Income Yield | 0.85 |
Thailand
| Returns | -0.12 |
| Volatility | 1.35 |
| Efficiency | -0.09 |
| Valuations PE | 0.56 |
| Diversification | 0.62 |
| Income Yield | 0.56 |
Singapore
| Returns | 0.55 |
| Volatility | 0.95 |
| Efficiency | 0.59 |
| Valuations PE | 0.58 |
| Diversification | 0.66 |
| Income Yield | 0.58 |
Indonesia
| Returns | N/A |
| Volatility | N/A |
| Efficiency | N/A |
| Valuations PE | N/A |
| Diversification | N/A |
| Income Yield | N/A |
Malaysia
| Returns | 0.73 |
| Volatility | 0.98 |
| Efficiency | 0.75 |
| Valuations PE | 0.90 |
| Diversification | 0.63 |
| Income Yield | 0.90 |
Japan
| Returns | -4.92 |
| Volatility | 1.62 |
| Efficiency | -3.04 |
| Valuations PE | 0.08 |
| Diversification | 0.32 |
| Income Yield | 0.08 |
As of March 2024
Source: MSCI, Bloomberg. Analysis by Franklin Templeton.
Based on figures relative to benchmark index for 5-year periods ending March 2024. For Equity MSCI ACWI used as benchmark. For Bonds-HC Bloomberg EM USD Aggregate Index used as benchmark. For Bonds-LC Bloomberg EM Local Currency Government Index used as benchmark.
For equities, the valuation measure was based on price-to-earnings ratios.
For hard currency bonds, the valuation measure was based on option-adjusted spreads. For local-currency bonds, the valuation measure was based on yield-to worst.
The chart is a graphical representation of a relative score for three different asset classes (equities, hard- and local-currency bonds) across six performance attributes (returns, volatility, efficiency, valuations, diversification and income) across 11 different APAC markets. The relative score is represented by the number of filled quadrants in each cell. The more quadrants filled, the better the score. More details are available in Appendix 2: Investment toolbox data and analysis in the downloadable report.
Geopolitics: A Delicate Balance
Although all APAC markets are sensitive to China uncertainty, several APAC markets are less sensitive to the US.
Note: World Uncertainty Spillovers Index measures uncertainty spillovers stemming from economic and political events in key systemic economies. The measure tracks uncertainty across the globe by text mining the market reports of the Economist Intelligence Unit. Normalized scores calculated for each market based on index values for period from the first quarter of 1996 until the fourth quarter of 2023. Score of 1 means average sensitivity to economic / political events in a given market. For China-China and United States-United States spillovers the score was set to 0.
Source: World Uncertainty Index. Analysis by Franklin Templeton Institute.
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Uncover APAC's Investment Potential
The APAC region offers a wealth of opportunities for investors who are willing to embrace the challenges and opportunities of these fast-changing markets and sectors. We believe that by adopting a strategic and informed approach, investors can unlock the full potential of the APAC region.
Overview
Opportunities in APAC markets for today and the next 20 years.
A Diverse Landscape
APAC’s diverse landscape fueled by economic growth offers abundant opportunities for discerning investors.
Future Waves of Opportunity
Discover the four megatrends that are reshaping the APAC investment landscape.
Unless stated otherwise, all information is as of August 2024. Source: Franklin Templeton.
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