New Delhi, Nov 20 India's valuations offer value as compared to Chinese equities as the nation is currently the largest underweight in Global Emerging Market (GEM) portfolios from the Asia region, with only a quarter of tracked funds holding overweight positions, a report said on Thursday.
Despite strong interest in the region’s AI supply chain — particularly in Taiwan and South Korea, Asia’s equity story is poised for a rotation toward markets offering broader value and earnings visibility, with India standing out prominently.
"India is currently the biggest underweight in GEM portfolios; only a quarter of the funds we track are overweight India. And after recent underperformance, we think India's valuations offer value as compared to Chinese equities," HSBC Global Research said in its report.
According to the report, Indian earnings are expected to recover meaningfully, supported by expanding bank margins, easing interest rates, and stronger consumption. Consumer-driven sectors, including autos, are also set to benefit from lower borrowing costs and potential GST adjustments, the report said.
Indonesia is another market expected to gain traction among investors.
Government policy support has increased, and monetary conditions are set to become more accommodative in 2026. The report said that there could be a sharp earnings rebound in the country, with consensus estimates pointing to growth improving from 7 per cent in 2025 to 11 per cent in 2026.
On mainland China, investor sentiment has strengthened in 2025, lifting valuation multiples.
However, further upside will depend on companies delivering on earnings expectations — currently projected at 16 per cent EPS growth in 2026, the report said.
Much of this will hinge on a revival in consumer spending, which remains a key talking point but has yet to benefit from substantial policy measures.
The report also highlights Asia’s dividend potential.
Over two decades, dividends in the region have more than doubled, yet payout ratios remain among the lowest globally.
"This leaves room for improvement. Korea’s government-driven “Value Up” programme has nudged companies toward more shareholder-friendly practices, while firms in China and Singapore have also begun distributing more. Indonesia, however, leads the region in raising payout ratios," the report noted.
HSBC analysts add that while AI continues to dominate global market narratives, investor exposure in Asia — especially in Taiwan and Korea — is already near capacity, with the average regional portfolio allocating around 10 per cent to a single stock, TSMC.
This concentration risk, combined with the cyclical nature of past tech booms, is likely to push investors toward more diversified regional themes in 2026.
The report said that the Global Investment Bank remained optimistic on Hong Kong, India and Indonesia, while maintaining underweight positions in Taiwan, Korea, Japan, Singapore and Thailand.
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