We recently compiled a list of the 10 Best Asian Stocks To Buy Now. In this article, we are going to take a look at where Toyota Motor (NYSE:TM) stands against the other Asian stocks.
The Economy of Asia
Asia the world’s largest and most populous continent has seen remarkable economic growth in recent decades. This surge in growth is fueled by various factors, including a rise in innovation and technological advancements across the region. Asia is also home to some of the most valuable and influential companies globally.
According to a report by the IMF, the Asian economies accounted for two-thirds of global growth in 2023. The region grew by 4.6% in 2023 and is forecasted to grow by 4.2% in 2024. The growth momentum is slowing in 2024, as the region faces challenges from China’s structural slowdown and a weaker-than-expected economic recovery. China’s economy rebounded in 2023 due to domestic demand and supportive measures such as monetary easing, tax reliefs, and fiscal spending. Nevertheless, growth is projected to slow to 4.6% in 2024 due to a struggling property sector and declining external demand. Looking further ahead, long-term growth is expected to decrease to 3.5% by 2028 due to weaker productivity and an aging population.
A Closer Look at Asia’s Economic Shifts and Trends
China’s economy is facing challenges due to weak consumer spending amid economic issues such as a prolonged housing slump and high youth unemployment. Chinese tech firms are increasingly focusing on artificial intelligence (AI) as a potential new revenue stream. However, intense global competition limits the effectiveness of this approach. The Chinese government needs to implement policies that restore consumer confidence and boost spending. In the second quarter of 2023, foreign investors pulled nearly $15 billion out of China, due to the slowdown in economic growth and rising geopolitical tensions. The rapid shift towards electric vehicles in China has also caught some foreign car manufacturers off guard, leading them to scale back or withdraw their investments. China’s balance of payments has turned negative. If this trend continues, it could result in the first annual net outflow of foreign investment since 1990. Despite efforts by the Chinese government to attract and retain foreign investment, such as lowering interest rates and encouraging the inflow of advanced technologies. Foreign direct investment into China during the first half of the year was the lowest since the pandemic began in 2020. Chinese companies have been increasing their outbound investments, particularly in projects such as electric vehicles and battery factories, sending a record $71 billion overseas in the second quarter of 2023, up more than 80% compared to the same period in the previous year.
Vivien Lin Thurston, a partner and portfolio manager at William Blair, noted that the earnings of major Chinese tech companies have been mixed due to the weak macroeconomic environment in China and intense competition within the e-commerce sector has led to market share losses. Thurston highlights sectors such as cosmetics, beauty, high-end manufacturing, and power equipment, which are benefiting from structural growth and overseas demand, have been more resilient to the current economic challenges. Furthermore, Thurston discusses the growing trend among Chinese companies to focus on shareholder returns through dividends and share buybacks, similar to Western companies. However, she cautions that this trend may also reflect a broader deflationary environment in China similar to Japan’s economic stagnation in the 1980s and 2000s. Hubert Chak, the CEO of SF REIT, noted that while Hong Kong’s property market has been relatively stable, the broader Chinese market continues to experience downward pressure on rental prices, particularly in logistics properties, with occupancy rates varying significantly across different regions.
India has delivered a robust economic performance, particularly in the January-March quarter of 2024, where the economy grew by 7.8% year-on-year, surpassing economists’ expectations. This growth was primarily driven by strong manufacturing output, although it marked a slight deceleration from the previous quarter’s 8.6% growth. Despite this, the growth exceeded the 6.7% forecast by economists in a Reuters poll. India’s economic growth for the entire 2023/24 fiscal year was revised up to 8.2%, making it the highest among major global economies. In terms of sectoral performance, manufacturing showed an 8.9% year-on-year increase, while agricultural output grew by 0.6%. The Reserve Bank of India’s (RBI) recent record surplus transfer is expected to provide the government with more financial flexibility, either to increase spending or reduce the fiscal deficit. The RBI is likely to maintain its benchmark repo rate at 6.50% in its upcoming meeting, given inflationary pressures. S&P Global has raised India’s sovereign rating outlook to “positive,” expecting the economy to grow at 6.8% in the current fiscal year and nearly 7% annually over the next three years.
In the second quarter of 2024, Indonesia’s GDP grew by 5.05% year-on-year, slightly exceeding forecasts. This growth rate, while strong, marks a slight decline from the 5.11% expansion in the first quarter. On a quarterly basis, GDP increased by 3.79%, a faster pace than anticipated, highlighting the resilience of Southeast Asia’s largest economy. Household spending grew by 4.93%, and public consumption increased by 1.42% last quarter compared to the significant 20% growth in the previous quarter due to pre-election spending. Investment growth accelerated to 4.43%, and exports showed signs of recovery as global trade rebounded. The steady economic performance provides the central bank with some flexibility to maintain current interest rates, focus on currency stability before potentially shifting to monetary easing later this year or in 2025.
In the second quarter of 2024, Japan reported a better-than-expected economic performance. Japan’s GDP grew by 0.8% quarter-on-quarter, surpassing analysts’ expectations of a 0.5% increase. This marks a reversal from the 0.6% decline in the first quarter. On an annualized basis, the GDP expanded by 3.1%, also beating the forecasted 2.1% growth. However, Japan’s GDP still fell on a year-on-year basis for the second consecutive quarter, declining by 0.8% after a 0.9% drop in the first quarter. Despite this, the positive quarterly growth led to a modest rise in Japan’s benchmark Nikkei 225 index and the Topix index on August 14. The Japanese yen also strengthened slightly against the U.S. dollar. Jun Saito, a senior research fellow at the Japan Center for Economic Research, described the GDP results as “very positive” and suggested that this will encourage the Bank of Japan (BOJ) to continue raising interest rates. However, the overall growth for 2024 is expected to be modest due to the earlier contraction in the first quarter. Saito warned that a narrowing interest rate differential between Japan and the U.S.—where Japan is raising rates while the U.S. is cutting them—could strengthen the yen against the dollar, negatively impacting Japan’s export value. He emphasized that the BOJ is likely to monitor market reactions closely as it continues its monetary tightening, aiming to make its monetary policy more flexible in the future.
Timothy Moe, Chief Asia Pacific Equity Strategist at Goldman Sachs, has an optimistic outlook for the APAC equity markets amid recent volatility. He believes that the recent concerns about U.S. economic growth and recession were somewhat exaggerated, and anticipates a 25 basis point rate cut by the Federal Reserve in September, as opposed to the 50 basis points previously expected by the market. Historically, when the Fed cuts rates without a recession occurring, markets tend to perform well in the subsequent months, which supports Moe’s positive view of the APAC region. He advises maintaining investments in key markets such as Japan, Korea, and Taiwan, despite recent sell-offs, due to their strong earnings growth, particularly in sectors such as semiconductors. Regarding China, Moe points out its weaker performance relative to other APAC markets but notes its diversification benefits. He stresses the need for more policy support from Chinese authorities to boost domestic demand and economic growth. Moe is strategically positive on China’s A-shares due to their potential benefit from structural market developments but prefers offshore Chinese equities in the short term. Looking ahead, he forecasts a 12% earnings growth for the APAC region in 2025, slightly below consensus expectations.
As Asia continues to navigate the complexities of economic growth, the region remains a powerhouse on the global stage. The coming years will be critical in shaping the region’s long-term economic trajectory. With that in context, let’s take a look at the 10 best Asian stocks to buy now.
Our Methodology
For this article, we used the Finviz screener to screen the largest Asian companies as of August 14. We compiled an initial list of 40 Asian companies and then narrowed our list to the 10 stocks that analysts see the most upside to. The list is sorted in ascending order of analysts’ average upside potential, as of August 14.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Workers assembling a car in a modern manufacturing plant, emphasizing the company’s sense of progress.
Toyota Motor (NYSE:TM)
Upside Potential: 46.20%
Average Analyst Price Estimate: $252.04
Toyota Motor (NYSE:TM) is one of the world’s most recognized and successful automobile manufacturing companies in the world. Toyota Motor (NYSE:TM) manufactures cars and trucks in 28 countries and sells them in over 170 markets worldwide. In 2023, Toyota Motor (NYSE:TM) sold a total of 11.2 million vehicles worldwide under the Toyota and Lexus brands. A crucial factor in Toyota Motor’s (NYSE:TM) success is its dedication to designing, engineering, and manufacturing vehicles in the regions where they are sold.
Toyota Motor (NYSE:TM) sold just over 100,000 EVs in 2023 and plans to sell 3.5 million EVs annually across 30 different Toyota and Lexus models by 2030 to become a leader in the electric vehicle market. A key element of the company’s strategy is the development of long-range battery packs, with expectations of providing up to 500 miles of range by 2026 and 620 miles by 2027. However, the true game-changer is the company’s anticipated mass-market introduction of solid-state batteries starting in 2027. These batteries will be lighter, cheaper, more energy-dense, and faster to charge than current lithium-ion batteries which could revolutionize the EV market. Toyota’s technology roadmap suggests that the first solid-state batteries could offer a driving range of 621 miles with just a 10-minute charging time, with further advancements potentially extending the range to 750 miles. Toyota Motor’s (NYSE:TM) history of delivering adds credibility to these projections and the company has a track record of introducing innovative products that succeed in the market.
While competition from Chinese automakers is a potential challenge due to their advancements in solid-state battery technology, Toyota Motor’s (NYSE:TM) established brand, global reach, and strategic partnerships in China such as with GAC and FAW provide it with a competitive edge. Additionally, Toyota Motor’s (NYSE:TM) ability to produce vehicles locally in key markets around the world further strengthens its position.
Given that Toyota Motor’s (NYSE:TM) current stock price is significantly below its one-year peak, and the company’s history of regular dividend increases, the stock presents an attractive buying opportunity for long-term investors. Toyota Motor’s (NYSE:TM) strategic investments in EV technology, coupled with its solid financial foundation and global manufacturing capabilities, make it a compelling choice for those looking to capitalize on the future of automotive innovation. The stock is trading at $172.39, as of August 14. Analysts have a consensus on the stock’s Buy rating, setting a price target of $252.04 which represents a 46.20% upside potential.
Overall TM ranks 9th on our list of the best Asian stocks to buy. While we acknowledge the potential of TM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.