We remain constructive on the medium- to long-term outlook for Asia ex-Japan equities. Most Asian economies are on a steady path to more normalized economic activity and north Asia has broadly picked up the pace compared with the rest of the region. In addition, demand for goods from these north Asian economies is driven by the West where economic activity is gaining traction.

�

We believe that domestic demand in Asia ex-Japan is holding up relatively well despite the uneven recovery of its economies. While China has experienced a V-shaped path to recovery, other Asian developing countries were stalled by the resurgence of coronavirus cases, the emergence of new variants and the impact of their virus containment measures as many had relied on prolonged restrictions on mobility rather than on an effective test-based strategy. Broadly speaking, however, the relative deterioration in fiscal and current account balances across the region has been more manageable compared with other parts of the world.

�

In terms of valuation, while there are pockets of excessive optimism in some sectors, we believe that the valuations of high-quality growth and cyclical growth businesses in Asia ex-Japan remain in line with historic levels.

�

Overall, we expect healthier earnings growth in 2021 and beyond, although the magnitude of earnings improvement of Asian companies will depend on the pace of economic normalization. Hence, there may be risks of earnings downgrades should the success of the vaccines fall behind expectations.

�

We remain cognizant of other risks. We believe that inflation appears to be under control in Asia and hence is not a source of immediate concern. We recognize that the vaccination drives in the developing world remain challenging. The slow progress of vaccination programs in some Asian countries may affect these economies more severely compared with others in the region. Delays in the distribution of vaccines could lead to persistent infections and prolonged restrictions could retard growth.

�

Geopolitical tensions remain a risk. While we may see some de-escalation of fractious relations between the U.S. and China under President Biden's administration, we believe that technological decoupling between the two countries is unlikely be reversed.

�

We continue to build this portfolio from the bottom up and while we take the macro environment into account, our philosophy and process remain squarely centered on fundamental stock selection. We are confident that we can continue to identify the best quality businesses in the region, supported by our Asia-based equity analysts and a global fundamental research platform along with our disciplined investment approach.

�

�

�

�