Chinese and Indian stocks are being watched as potential outperformers in Asia later this year as investors flock to emerging market themes.
About a third of 19 Asia-based strategists and fund managers informally surveyed by Bloomberg News said they expect Chinese stocks to outperform most over the next six months, with a similar number naming India as their top pick, and Japan a distant third.
Expected Federal Reserve rate cuts are seen as a boon for two emerging markets, each with its own story: Survey respondents favored Chinese stocks due to low valuations and hopes of policy changes, and Indian stocks due to post-election optimism and relative immunity from geopolitical tensions.
“We see valuation discounts and stronger global growth creating an opportunity for emerging markets, particularly in Asia, to take the lead in the second half of the year,” Joseph Little, global chief strategist at HSBC Asset Management, said in his interim outlook.
Emerging market stocks in the region are already doing well: The MSCI EM Asia Index rose the most since 2009 last quarter, outperforming the broader MSCI Asia index. Emerging Asia was nominally the most net bought region in June, while global stocks were sold at their fastest pace in two years, according to Goldman Sachs Group Inc.’s prime brokerage desk.
India’s stock market has been rallying after Prime Minister Narendra Modi’s ruling party secured enough support from key allies to form a coalition government, giving him a third consecutive term in power. The country’s stock market value surpassed $5 trillion for the first time in June as Modi pledged policy continuity and foreign investors returned to the market after a two-month hiatus.
A separate Bloomberg survey of India showed the country’s stock rally could accelerate towards the end of the year as investors remain confident about corporate profit growth and the upcoming federal budget could provide a further boost to areas such as consumer spending and infrastructure.
Ray Sharma Ong, head of multi-asset investment solutions for Southeast Asia at Abreedon, is favorable on Indian stocks, citing “several factors that are yet to be priced in,” such as the government budget, and sees Indian stocks as “the most protected from the US-China tensions and the knock-on effects of the US presidential elections.”
Meanwhile, Chinese stocks have struggled after a strong rally earlier this year, with several major indexes undergoing a technical correction in recent weeks.But both a broader Bloomberg survey and a separate China-focused survey found that analysts and asset managers are optimistic about the world’s second-largest stock market over the next six months as global funds return and corporate earnings improve.
HSBC Holdings Plc is bullish on China and sees a “gradual shift in the very negative sentiment towards Chinese stocks,” according to Asia equity strategist Gerard van der Linde, who is adding to his position heading into the second half of the year, citing “gradual improvement in the Chinese economy.”
The broader survey also noted that geopolitical tensions stemming from the upcoming US presidential elections are a major risk for Asian markets, with tougher policies possible as US President Joe Biden and former President Donald Trump vie to position themselves against China.
“The impact of rising tensions between China and the U.S., or China and Taiwan, will be felt across the region,” said Hebe Chen, an analyst at IG Markets. “No market in Asia will be immune, especially the strongest ones today.”
More than half of respondents said Asian stocks will likely outperform U.S. stocks through the end of 2024, thanks to Fed rate cuts and cheap valuations, but most see the gains being limited to 10% or less.
“Asia is poised to outperform in a Fed rate-cutting cycle,” said Sharma Ong. “In addition to lower policy rates, Asia will see stronger economic growth and profitability, stock prices at cheaper valuations and currencies with greater carry against the dollar.”
–With assistance from Abhishek Vishnoi, Aya Wagatsuma, and John Cheng.
Read this article at bloomberg.com
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