Chinese and Indian stocks could be more favoured than Japanese ones…

Bloomberg — Stocks of China and India are being seen as potential blockbusters in Asia in the second half of the 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 see Chinese stocks outperforming most over the next six months. A similar number picked India as their top bet, while Japan came in a distant third.

The anticipated interest rate cuts by the Federal Reserve are seen as acting as tailwinds for the two emerging markets, each of which also offers its own unique narratives. Respondents preferred Chinese stocks for their low valuations and anticipated political changes, while favored Indian stocks due to their post-election optimism and relative immunity to geopolitical tensions.

“We believe valuation discounts and broadening global growth present an opportunity for emerging markets, particularly in Asia, to lead in the second half of the year,” wrote Joseph Little, chief global strategist at HSBC Asset Management, in his mid-year outlook.

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Emerging market stocks in the region are already on a roll. The MSCI EM Asia Index outperformed the broader MSCI Asia gauge by the most since 2009 in the last quarter. Asian emerging markets were also the region with the most net purchases in Juneaccording to Goldman Sachs Group Inc’s preferred trading desk, while global equities sold off on a net basis at the fastest pace in two years.

Indian equities have extended their rally since Prime Minister Narendra Modi’s ruling party secured enough support from key allies to form a coalition government, giving the leader a third consecutive term in power. The nation’s stock market value surpassed $5 trillion for the first time in June as the country’s economy climbed to $1.5 trillion. Modi pledged political continuity and foreign investors returned to the market after two months.

A separate Bloomberg survey of India showed the country’s equity rally has the potential to accelerate later in the year as investors remain confident in corporate profit growth and the upcoming federal budget could provide a new boost to areas such as consumer spending and infrastructure.

Ray Sharma-Ong, Head of Multi-Asset Investment Solutions for Southeast Asia at abrdn Plc, is positive on Indian equities as “Multiple catalysts still need to be priced”including the government budget. He also believes that Indian stocks are “the most protected from US-China tensions and the spillover effects of the US presidential election.”

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Chinese stocks, On the other hand, they have been struggling after a strong rally at the beginning of the year, with some key indicators entering a technical correction in recent weeks. However, both the overall survey and a separate Bloomberg survey focused on China concluded that analysts and money managers are optimistic about the world’s second-largest stock market for the next six monthsas global funds return and corporate profits improve.

HSBC Holdings Plc is bullish on China and expects the “very negative sentiment on Chinese equities to slowly turn around,” according to Herald van der Linde, an Asian equity strategist. It is adding to positions for the second half given the “slow improvement in Chinese activity.”


The extensive survey also noted that geopolitical tensions arising from The upcoming US elections are a key risk for the Asian marketMore restrictive policies could be on the way as US President Joe Biden and former President Donald Trump clash over their stance towards China.

“The impact of escalating tensions between China-US or China-Taiwan will be across the region,” said Hebe Chen, an analyst at IG Markets Ltd. “No Asian market is immune, particularly the currently best performing markets.”

More than half of respondents said Asian equities are likely to outperform their US counterparts through the end of 2024, citing Fed rate cuts and cheap valuations.However, most of them see profits limited to 10% or less.

“Asia has the potential to outperform in a Fed tapering cycle,” Sharma-Ong said. “In addition to policy rate cuts, we have stronger economic growth and earnings potential in Asia, equity valuations at cheaper levels and currencies with higher carry relative to the dollar.”

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–With contributions from Abhishek Vishnoi, Aya Wagatsuma and John Cheng.


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