A mixed top-down picture. The top-down picture for Asia in 2H is mixed. Our expectation that global inflation will surprise on the upside and the dollar weaken typically would boost the region, but EPS momentum is dull, and local currencies probably have limited room to rise. China—where growth momentum peaked last year—will likely remain a drag on regional indices.

Staying Underweight China and overweight second-stage performers. Our market weightings continue to favour markets we deem as second-stage performers, i.e. those places where GDP and earnings are at present seeing their strongest normalisation recoveries. The list includes Singapore, India, Korea and Australia. We Underweight the main early-stage performer—China—which is well past its peak growth and showing signs of a mature cycle on EPS and valuations. We consider it too early to move aggressively into the Asean-4 markets, which we deem late performers that will rebound most strongly next year, but we are gradually stepping into the region with an upgrade of Indonesia from Market Weight to Overweight. We have also reversed our tactical upgrade of Japan made in March to Market Weight with a downgrade to Underweight. We consider rising inflation  and a weak dollar negative for Japan’s performance relative to AxJ.