Source: Wall Street
Author: Ye Zhen

Us stocks, which have long led the world, are reversing, a trend that accelerates at the start of 2023 and is expected to continue throughout the year.

China's optimization and adjustment of epidemic prevention and control measures has injected a strong impetus into the Asia-Pacific market. As soon as China and Hong Kong stocks are out of dust, the MSCI Asia-Pacific Index has entered a technical bull market; with the style of slowing inflation, alleviating the energy crisis, and losing value in science and technology, even European stocks, which have always lagged behind the big market, have caught up and left US stocks behind.

There is no doubt that Chinese stocks are the "prettiest" in the global market recently. In the three months to January 11, tracking Chinese companies listed in the United States$NASDAQ Golden Dragon China (.HXC.US)$The Jedi counterattacked, rebounding nearly 36%, leading the world and up 90% since its low on October 24.

$Hang Seng TECH Index (800700.HK)$Immediately after that, it rebounded 34% in the past three months, 68% higher than the lowest point in the range.$Hang Seng Index (800000.HK)$It has risen 24% in the past three months, rebounding 46% from the lowest point in the range.

On Tuesday, the MSCI Asia pacific index hit a high of 162.33, about 21% higher than the 52-week low of 133.93 hit on October 24, officially entering a technical bull market.

European stocks that have been weak for a long time have counterattacked collectively. Italy's FTSE MIB index, Germany's DAX index and France's CAC40 index rose 20%, 18% and 15% respectively in the past three months, while Europe's STOXX 600 and STOXX 50 rose 14% and 13% respectively over the same period.

Compared with the rapid gains in the Asia-Pacific and European stock markets, U. S. stocks look a little lonely.

The s & p 500 has risen 8.5% in the past three months, less than half the rise of the Italian, German and French benchmark indices over the same period, and the NASDAQ is up 2%. Thanks to resilient cyclical stocks, the Dow Jones industrials alone supported u.s. stocks for half a day, up 15% during the period.

Technology brings down US stocks, while European stocks shine because of their value.

Since the financial crisis, the Fed's continuous loose monetary policy has provided a steady stream of incremental funds for US stocks, creating a great bull market for more than a decade. The prosperity dominated by technology stocks has led to the achievement of the "bull market queen" wooden sister, "investment madman" son.

After the outbreak of the epidemic, the unprecedented release of water was to cook oil for the fire of US stocks. In the eyes of the younger generation of investors, US stocks are a "myth that only goes up but does not fall."

But the main line ushered in a U-turn in 2022, and it was a U-turn of 180 degrees. In the face of 40-year high inflation, the Fed has raised interest rates more aggressively than expected, from 25 basis points to 50 basis points to 75 basis points in a row.

The era of negative interest rates is coming to an end, with technology stocks bearing the brunt.

$Alphabet-A (GOOGL.US)$、$Amazon (AMZN.US)$、$Microsoft (MSFT.US)$、$Meta Platforms (META.US)$、$Apple (AAPL.US)$Falling one after another, staging a return to valuation in the face of soaring interest rates, coupled with receding epidemic dividends, slowing consumer spending, a stronger dollar and rising inflation, these once-high-spirited technology stocks have frequently made headlines because of spending cuts, hiring freezes and layoffs.

With twists and turns, European stock markets, once snubbed by investors for a lack of technology stocks, have become a safe haven. In an environment of high interest rates, investors' preference for value stocks, such as banks, retailers and energy companies, has brightened the cyclical European index.

As of the fourth quarter of 2022, US stocks accounted for 40 per cent of all technology stocks, compared with 19 per cent in emerging markets, 13 per cent in Japan and 7 per cent in Europe, according to Bank of America. The slump in technology stocks driven by regulation, penetration and interest rates is under way, but investors have not really begun to exit technology stocks, which hurts the United States even more.

The strength of European stock markets was also driven by stronger economic expectations. A warmer-than-expected winter has allayed investors' concerns about the energy crisis, and falling energy prices have also helped to lower inflation, lowering market expectations of how tight the ECB will be.

On Tuesday, Gao Shang, which had asserted that Europe would face a recession, raised its eurozone economic forecast, raising its 2023 eurozone GDP forecast to 0.6 per cent from minus 0.1 per cent. Goldman Sachs Group believes that the warm winter has also ushered in a warm wind for the European economy, and this year may shake off the haze of recession, and the fall in energy prices may push inflation down faster than expected by the ECB. this will reduce the pressure on the ECB to some extent.

In addition, European stocks have benefited from currency depreciation. The prolonged weakness of the euro and sterling against the dollar last year made European stocks relatively cheap and more attractive to some investors. The weak euro and pound have improved the export competitiveness of European companies and the value of their dollar-based revenues.

China's epidemic prevention and control optimized to boost the Asia-Pacific market, deregulation of Chinese stocks out of the cold winter

The optimization of China's epidemic prevention and control measures since the end of last year has injected vitality into the Asia-Pacific and even global markets.

As developed economies slow due to rising interest rates and high energy costs, China's urgent consumption and investment potential has eased fears of a global recession and raised the possibility of a soft landing for the world economy. By far, China is the world's largest engine of growth, accounting for about 30 per cent of global growth.

On January 9, the first batch of Chinese tourists arrived in Thailand after COVID-19 's "Class B" and received a "heroic welcome" from the Thai authorities. The Thai Tourism Board said that the return of Chinese tourists will further boost Thailand's tourism industry. It is expected that the number of Chinese tourists to Thailand will reach 300000 in the first quarter of this year and 5 million in the whole year.

JPMorgan Chase & Co also said recently that the reopening of China will increase Australia's economy by nearly 1 per cent, of which the full recovery of Australian tourism will increase the country's GDP by 0.5 per cent, while the return of Chinese students will add another 0.4 per cent to its GDP.

In addition to the positive prospect of optimizing epidemic prevention and control to boost the economy, China's general enterprises have ushered in a regulatory turn.

Guo Shuqing, party committee secretary of the people's Bank of China and chairman of the China Banking and Insurance Regulatory Commission, was interviewed by Xinhua a few days ago. talking about "promoting the healthy development of Internet platform enterprises," he said that the special rectification and reform of the financial business of 14 platform enterprises has been basically completed, and a small number of remaining problems are being solved.

More positive signals came from the Internet industry after senior regulators made public their position for the first time. On January 10, Hangzhou signed a comprehensive deepening strategic cooperation agreement with BABA, and specific measures for Hangzhou to support the platform economy are under formulation.

The improvement in the macro outlook and positive industry regulation have led to a Jedi counterattack for Chinese stocks. In the past three months, among the major US-listed stocks$Bilibili (BILI.US)$Rebound 99%$Pinduoduo (PDD.US)$Rebound 62%$KUAISHOU-W (01024.HK)$Rebound by 50%$Alibaba (BABA.US)$Rebound 45%$TENCENT (00700.HK)$Rebounded by 44%.

At the same time, the enthusiasm of analysts to sing long is still running high.

Jan 9, Morgan Stanley analyst Laura Wang and others pointed out in the latest report that China's GDP and corporate profits will accelerate in 2023, and China's stock market will become the best performing stock market in the world. Meanwhile, Morgan Stanley maintained the addition of the MSCI China index and raised his target for the index by the end of the year from 70 to 80. There is room for a 13% increase from the latest closing price.

Goldman Sachs Group strategist Kinger Lau said in the latest report that in view of China's epidemic prevention and control policy adjustment faster than expected, macroeconomic recovery is expected to continue, Internet sector profits have further room for growth, the capital market is expected to continue to rise. It raised its 12-month target for the MSCI China index to 80 from 70 (15 per cent upside) and expects the renminbi to rise to Rmb6.50 to the dollar by the end of the year.

Forget about US stocks and buy the world?

Us stocks may have only just begun to lose the market.

Earlier this month, Michael Hartnett, chief investment strategist at Bank of America Corporation, said in his first research report in 2023 that the market had entered a "new era" and that US assets would underperform the global average in 2023.

According to Bank of America, U.S. stocks have been crushing global stocks for 15 years: $100 worth of U.S. stocks in March 2008 is now worth $288, while then $100 (excluding the United States) global stocks have now fallen to $94.

But Hartnett believes that global stocks will outperform US stocks in 2023, driven by a combination of interest rates, technology stocks, share buybacks, energy, war and the dollar, as well as global status. In its "Top Ten Trading of the year" (figure 2), Hartnett is bullish on Chinese stocks and European banks and bearish on US technology stocks.

Similarly, Morgan Stanley recently said that after a chaotic 2022, the rest of the world will outperform the US stock market.

2022 is a historic year for America's capital markets, the first year since at least the 1870s, when US stocks and long-term bonds both fell more than 10 per cent. Morgan Stanley believes that stocks around the world will perform better driven by attractive relative valuations, spreads and momentum in the still tough US market environment.

Edit / Somer