Asian stock investors returning from the summer holidays will realize they haven’t missed much — but there are a few themes they definitely don’t want to botch in the final stretch of the year
While the S&P 500 Index eked out a fresh record, the MSCI Asia Pacific Index did little, rising in July only to erase those gains in August. Market watchers say a sentiment turnaround is unlikely amid a trade war between the world’s two biggest economies, growing corporate-earnings pessimism and U.S. dollar strength.
For Marcella Chow, global market strategist at JPMorgan Asset Management, one of the key elements for Asian equities is whether the greenback has peaked.
The strength in the currency has weighed on the region’s emerging markets, especially for those with many companies bearing U.S. dollar-denominated debt such as China, Indonesia and Philippines. And there may be more greenback gains in the near term: Higher short-term rates and further Federal Reserve tightening will likely reduce U.S. dollar liquidity and increase its appeal to foreign investors, Chow wrote in emailed comment
Paul Kitney, the chief strategist at Daiwa Capital Markets Hong Kong Ltd., says the greenback’s performance may soon shift.
“In the short term, this is a pro-USD and anti-EM event,” he said. “Once a trade deal is struck — and my guess is no later than one month out from the November mid-term elections in the U.S. — then the strong dollar will reverse and there will be an EM catch-up rally, led by China.”
“Concerns around debts and the trade-war noise have soured sentiment, but I think A shares will attract significant interest from foreign capital,” said Stephen Innes, head of Asia Pacific trading at Oanda Corp. in Singapore. “We’re very close to a turning point.”
“It makes sense for long funds to start accumulating China stocks slowly,” said Banny Lam, head of research at CEB International Investment Corp. in Hong Kong. But an uncertain economic outlook, lack of stock-market liquidity and low confidence among retail investors may weigh on the shares for a long time, he said.
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