Quality-focused shares continued to outperform in Asian markets through the latest market sell-off, according to Macquarie, even as the leadership pattern in the US and Europe moved in the opposite direction. The firm characterises the environment as risk-off, which precipitated a broad momentum unwinding rather than a clear rotation between growth and value stocks.
Despite heightened concerns about stagflation in the region, earnings revisions stayed relatively resilient. That resilience was visible across several markets, though the strength of earnings upgrades and the dominant investment factors differed by country.
Regional patterns and sector drivers
- In Asia excluding Japan, value stocks led in China, while Korea adopted an underweight stance toward growth-oriented names.
- Market breadth improved across the region and correlations between stocks rose, aligning with the overarching risk-off backdrop.
- Momentum was broadly sold across markets, with Taiwan the notable exception where momentum held up.
At the sector level, energy and materials posted the strongest earnings upgrades across the region. Information technology provided meaningful support for earnings revisions in Korea and Taiwan. In Japan, most sectors showed strength with the exception of telecoms, and property names delivered the most pronounced revision momentum.
Portfolio positioning and factor shifts
On a market-cap basis, portfolios rotated away from growth toward value, with value positioning increasingly overweight defensive sectors relative to cyclicals. In Japan, factor leadership changed sharply from the prior month, with capital management and profitability regaining prominence amid the risk-off conditions. Earnings upgrades in Japan remained robust despite the shift in factor emphasis.
China's market dynamics were described as moving toward fundamentals amid muted earnings revisions and a regional reversal in momentum leadership. In India, stock selection continued to reflect neutral risk considerations even though the market underperformed and earnings revisions were broadly neutral.
Korea experienced substantial earnings upgrades that did not translate into commensurate market performance as the global risk-off impulse dominated. Factor exposures in Korea tilted toward value and quality, notably through accruals measures. Taiwan stood apart as the only market where momentum persisted as a primary driver; over the past year momentum has become more closely aligned with measures of profitability there, while earnings revisions remained strong.
The findings indicate a heterogeneous response within Asia to the same global risk-off forces: quality and value orientations gained traction in many markets, sectoral revision leadership varied, and momentum's role diverged notably between Taiwan and other markets.