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Beyond China: a look at Asia's other major economies - India and Japan

December 2021


  • Japan and India have moved in opposite directions for much of 2021
  • The Indian market is supported by a buoyant IPO market and cyclical companies
  • Japan is starting to turn around as Covid infections drop


Do the fortunes of Asia rise and fall with China? Certainly, that has been the prevailing view for much of this year, when Asian markets have sold off in response to China’s regulatory clampdown and flagging economic growth. However, there are two other economies that are vitally important to the health of the Asian region: India and Japan.

The two countries have moved in opposite directions for much of 2021. In spite of the emergence of the Delta variant and continued economic shutdowns, the Indian stock market has shown considerable strength with the MSCI India index up 29% for the year to 29 October 2021, compared to just 2.5% for the MSCI Emerging Market index. Japan, in contrast, has largely managed to keep the virus under control, but the MSCI Japan index is only up 2.6% for the year to 29 October 2021.

India’s strength, says Kristy Fong, manager of Aberdeen New India Investment Trust, has partly come from the strength of its economic recovery. In this environment, cyclical companies have been particularly buoyant, including steel and financials, which are well-represented in the Indian stock market. The second driver, she says, has been a buoyant Initial Public Offering (IPO) market.

She adds: “We’ve seen the IPO of Zomato, a local version of Deliveroo, which has built a strong customer base in the region. This has brought a lot of local retail support and is why we have seen small cap companies doing better, in spite of concerns about a second wave.” The government has also been supportive, she says, with a strong focus on getting the economy moving.

“The health impact has been severe, but with vaccination rates on the rise, the direction of travel is positive. As a result, markets have held up well. Investors have real optimism in the economic recovery with consumption and investment picking up.”

Japan’s markets have had many of the same qualities. There has been a recovery in company earnings, particularly those with large overseas exposure. Japan would normally be a natural beneficiary of the recovery in global economic activity.

However, the market had been held back by weak domestic consumption due to states of emergency that were in place until the end of September. The vaccination programme started late, but has picked up pace and cases have dropped significantly since then. Due to Covid’s prolonged impact this year, we expect pockets of domestic consumption to recover from here, which makes the Japanese market interesting as recovery in consumption has been delayed compared to most Western markets. In addition, the new prime minister Fumio Kishida is likely to sustain Japan’s fiscal and monetary stimulus to support a recovery in the domestic market.

For the time being says Hisashi Arakawa, manager of Aberdeen Japan Investment Trust, it has been world-class companies with global operations that have benefited most from the nascent improvement in stock markets. He says: “Toyota has done well, alongside sectors such as machinery, chemicals and electronics. Semiconductors, where there is a global shortage and a lot of investment, is an area where Japanese companies excel and this has also been strong.”

The path ahead

For investors, the two countries are in very different places, but there are areas of opportunity in both. Digitalisation is a theme across both countries. Fong says: “India was investing a lot in digital infrastructure even before Covid. The pace of acceleration has grown because of the pandemic and growth projections are now a lot more bullish. Digital payments, for example, have increased since pre-Covid. Digital adoption is something we have seen with Indian companies and consumers.”

In Japan, the change brought about by digital adoption is perhaps even stronger. Arakawa says: “Before Covid, it was very unusual to work from home. A lot of companies are now adopting hybrid strategies because people have realised that it works. This is a structural change and the government is pushing for it, creating its new Digital Agency to shift government departments from paper-based to digital.”

This is improving the productivity of Japanese companies across the board but has created real opportunities for providers such as Sansan, which creates cloud-based management software for business cards, allowing people to exchange business cards online.

Trust positioning

In the Aberdeen New India Trust, another strong theme is domestic consumption. It participated in the IPO of Zomato, but the managers have also added to digital advertising group Affle and Info Edge. The Trust is also tapping into other significant structural themes such as renewable energy. Fong says: “India isn’t an obvious market for this theme, but we have bought two solar and wind farm companies that are outside India, but doing business in India.”

The Aberdeen Japan portfolio is varied, with auto giant Toyota sitting alongside some niche small caps. Arakawa says: “Today, we hold positions in potential beneficiaries of the global recovery. That means high quality world-class companies such as manufacturers in the automotive supply chain and factory automation providers. We also have some domestic names that are well placed to benefit from domestic demand such as real estate developers with commercial facilities. We also hold a number of small caps that are often the leading manufacturer globally in a niche market.”

Investors in Asia can be reassured that China is not the only game in town. Japan and India may be every bit as important to the overall health of the region and a source of idiosyncratic opportunities.

Companies selected for illustrative purposes only to demonstrate abrdn’s investment management style and not as an indication of performance.

Important information

Risk factors you should consider prior to investing:

  • The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
  • Past performance is not a guide to future results.
  • Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
  • The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
  • The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
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  • Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss.
  • Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
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  • As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
  • The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
  • Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.


Other important information:

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

For more information, please visit our websites:

Aberdeen New India Investment Trust PLC

Aberdeen Japan Investment Trust PLC

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Risk warning
Risk warning
The value of investments and the income from them can go down as well as up and you may get back less than the amount invested. Please refer to the relevant Key Information Document (KID) prior to making an investment decision. Please be aware of scams that can affect investors.