Source: Wall Street News
China's A-shares and Hong Kong stocks are favored by the market because of their valuations close to their historical position. Furthermore, corporate reform measures in Japan and South Korea also support the logic of “value investment.”
At the beginning of the new year, investors are hopeful that the Fed's easing policy will drive the whole of Asia and the global market upward. However, the actual situation is very different from expectations. In recent weeks, inflation data has frequently thrown cold water on expectations of interest rate cuts, and the Federal Reserve has delayed implementing easing policies, thus breaking investors' expectations for a general rise in risk assets in Asia.
Investment managers in the Asian market have become more cautious, moving from a wider range of risk assets to finding industries and markets that provide stable returns. As a result, the “value investment strategy” in the Asian market is popular in the market.
On the one hand, the Chinese stock market is very attractive due to its valuations close to its historical position, providing an entry opportunity for investors seeking value investments. Furthermore, corporate reform measures in Japan and South Korea also underpin the logic of value investing.
Driven by undervaluation, corporate reform, and domestic demand have become the focus of foreign investment
With the Federal Reserve's interest rate cut expectations being drastically delayed, US bonds are more attractive than bonds in emerging Asian markets, and the performance of the Asian bond market is poor. Local currency government debt in emerging Asian markets has fallen 1.7% (in US dollars) since this year, according to Bloomberg data.
Central banks in Asia have adopted hawkish policies to protect the value of local currencies. This has reduced the appeal of bonds as traditional safe assets, making the stock market the main source of return for investors. In contrast to the bond market, MSCI's Asia Pacific Stock Market Benchmark Index grew by around 1.7% this year.
With the repricing of the Asian market, corporate reforms, undervalued stocks, and domestic demand-driven industries are receiving attention from fund managers.
First, the current valuations of the Chinese and Hong Kong stock markets are close to historic lows. Investment companies such as M&G Asset Management have shown strong interest in undervalued Chinese stocks.
Second, large investment management firms such as J.P. Morgan Chase and AllianzGI (AllianZGI) believe that corporate reform measures in Japan and South Korea support the idea of value investing. Because these measures will improve the company's efficiency and profitability, make stocks in these markets more attractive.
Additionally, Gary Tan, portfolio manager at Allspring Global Investments, stated, “A prolonged high interest rate environment will hinder capital inflows into the Asian market. In the current market environment, some specific industries may become “safe harbors” for investment. For example, infrastructure stocks in India, companies benefiting from reforms in South Korea, and domestic consumer and utility stocks in China.”
The valuation of the Chinese stock market is undervalued, and Hong Kong stocks are already five times ahead
On April 26, A-shares and Hong Kong stocks collectively counterattacked, and northbound capital poured into A-shares like crazy, with a net unilateral purchase of 22.449 billion yuan throughout the day, the highest value in a single day since the launch of Land Stock Connect in 2014.
Among them, Hong Kong stocks performed very well.$Hang Seng Index (800000.HK)$In April, it became one of the best-performing major stock indexes in the world. On April 26, as Hong Kong stocks closed, the Hang Seng Index had a cumulative increase of 8.8% over the past five trading days, making it the best weekly performance since 2011. Even after a sharp rebound, the current price-earnings ratio of the Hang Seng Index is 8.3 times, which is still below the 5-year average of 10.2 times.
The analysis points out that Hong Kong's status as a global financial center has received support from the Chinese government. From a policy perspective, the five measures introduced by the China Securities Regulatory Commission this week to support Hong Kong's capital market have supported the performance of Hong Kong stocks, helped improve the medium- to long-term liquidity of Hong Kong stocks and provide incremental capital.
Some analysts believe that the main reason for foreign investment to invest in A-shares is that China's moderate inflation and government measures to stimulate the economy and capital market help boost corporate profits and investor confidence, making the Chinese stock market more resistant to the uncertainty of the Federal Reserve's policies. Furthermore, as economic data improves and corporate profits recover, analysts expect the Chinese market to continue to attract capital inflows and investors' attention.
Gautam Samarth, a multi-asset fund manager at M&G Investment Management, is particularly optimistic about A shares and Hong Kong stocks. He believes that the Chinese market is undervalued and ideal for investment. Furthermore, the strategist at HSBC Holdings Limited wrote in a report that global emerging market funds' views on mainland Chinese stocks have been adjusted from previous low allocations to neutral, while Asian fund holdings have reached a seven-month high. Meanwhile, UBS Group upgraded the rating of Chinese stocks from neutral to overrated on the grounds that profits are expected to improve.
Japanese financial stocks are favored by investors
Some analysts pointed out that although the Japanese stock market is close to technical adjustment (the stock price fell close to 10%), many investors are still optimistic about the Japanese stock market because of the potential for Japan's economic growth and positive progress in corporate reforms. Moreover, as the Bank of Japan gradually raised interest rates, the attractiveness of Japanese financial stocks (especially bank stocks) further increased. According to the data, Japan's Topix Bank Index has risen by about 25% this year.
Fidelity International's fund manager George Efstathopoulos said that both export companies and tourism-related industries would benefit from the depreciation of the yen and improved global demand. Meanwhile, as government bond yields rise, Bank of Japan stocks will also benefit.
Michael Kelly, head of global multi-asset management at PineBridge Investment Management, said that Japanese financial stocks are currently a popular investment area, and they are already heavily invested in this field.
Korea's chip industry and Indian consumer manufacturing receive foreign attention
As the South Korean government strives to eliminate the so-called “Korean discount” and the recovery of South Korean exports, the Korean chip industry is gradually gaining market favor.
Zijian Yang, Asia Pacific multi-asset head of AllianZGI Global Investments (AllianZGI), said:
“From a tactical point of view, we are particularly bullish on Korean stocks. The growth of the Korean economy is largely dependent on exports, particularly high-tech products and semiconductors. As global demand for semiconductors increases, demand for Korean products in the US market stabilizes, and the Chinese economy bottoms out, South Korea's exports have resumed growth and strengthened the attractiveness of the Korean stock market.”
Furthermore, some analysts point out that India has a huge domestic consumption base and growing manufacturing strength. Despite the high valuation of the stock market, Indian stocks are still favored by many investors for a long time.
Jin Yuejue, a multi-asset solutions investment expert at J.P. Morgan Asset Management, said:
“India has strong potential for domestic consumption, which is supported by India's favorable demographic structure and macroeconomic stability. The trend of global companies reconsidering the layout of their global supply chains is also beneficial to the country's goods and services sector.”
Editor/jayden