(Bloomberg) – The nascent resurgence of the North Asian stock market is being touted as the start of a potential bull run as bets are on the gradual reopening of China as well as the chip industry. bottoming out.
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Strategists at Goldman Sachs Group Inc. expects Asia’s equity leadership to shift from Southeast Asia and India to markets like China and South Korea next year, while Societe Generale SA said its tech-heavy market Taiwan is also at an inflection point. Jefferies Financial Group Inc. also expressed the same opinion.
Stocks listed in Hong Kong as well as South Korea and Taiwan have fallen for most of the year due to their heavy reliance on the Chinese economy, which has been constrained by the measures. Strict control of Covid and real estate crisis. Meanwhile, domestic demand drives the southern markets of Indonesia and India that boast resilience. The situation changed this month after a series of aggressive policy moves by Beijing.
“Our concern is that Southeast Asia is starting to underperform in the past few weeks, as investors return to North Asia,” said Alexander Redman, chief equity strategist at CLSA. “Indonesia, as an inward, defensive commodity exporter, is a reasonable haven to weather the stock market storm, adding that the market will be “little better,” he said. favored as investors re-engage in some deep value cyclical investments in North Asia.”
The main equity gauges in Hong Kong rose about 20% in November, easily overtaking the rest of Asia and its major global peers, as China urged Covid restrictions more targeted and strengthen policy support for the real estate sector.
Foreign investors poured $5.8 billion into Taiwanese stocks this month, the first inflow in six months and the largest in 15 years. Net buying of Korean stocks is set to exceed $2 billion for the second straight month.
In contrast, the Indonesian market – once favored by investors as an inflation hedge – was flat in November and could see monthly cash flows turn negative for the first time since October. 7. Investors are also more wary about valuations in India, where benchmarks have recently hit record highs, with Goldman Sachs predicting a relatively underperforming market in 2023. .
“Any positive catalyst such as the possibility of China reopening and supporting policy, easing geopolitical tensions, or bottoming out the tech cycle is likely to spur a sharp correction.” North Asian markets, Jefferies strategists led by Desh Peramunetilleke wrote in a note. Hong Kong, China, Korea and Taiwan overweight brokerage, neutral to Indonesia and underweight to India.
READ: North Asian stocks rally could affect India’s appeal: BNP
French fries, China
The bullish case for South Korea and Taiwan also builds on their chip dominance, as these markets are home to industry heavyweights such as Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. They also have China as their largest trading partner.
Private banks SocGen and Lombard Odier this month joined Morgan Stanley in suggesting that investors should tiptoe back into Asian semiconductor stocks.
“Share prices typically bottom out two to three quarters before hitting the bottom of the semiconductor cycle,” SocGen strategists led by Alain Bokobza wrote in a note last week. “We might be at this point.”
Chinese shares in Hong Kong are poised for their best month since 2006, as asset managers from M&G Investments and Eastspring Investments to Franklin Templeton Investments bought into the rally.
On the mainland, foreign funds bought about 49 billion yuan ($6.8 billion) worth of shares through trading links with Hong Kong.
Risks still
That doesn’t mean North Asia’s uphill road will be smooth.
With their heavy reliance on exports, these markets are vulnerable to the threat of a global recession and are often the focus of geopolitical tensions involving the US and China. Moreover, the record increase in the number of virus infections in China is also dampening the positive momentum of the market.
“There are ongoing concerns from the geopolitical side of the review,” said Vivian Lin Thurston, portfolio manager at William Blair Investment Management. And while the industry’s cycle is changing, “if the global economy is in recession, I think we have to reassess the cycle and the thesis,” she added.
However, with earnings forecasts already deeply reduced across northern economies, the market may have more upside potential. Equity benchmarks in China, South Korea and Taiwan are still down more than 15% year-to-date, while in Indonesia and India each are up about 7%.
For China watchers, a Politburo meeting in early December, immediately followed by the annual Central Economic Work Conference, could offer helpful signals.
“If we use the metaphor of a train leaving the station, the locomotive is South Korea and it has already left the station,” said Jonathan Garner, chief Asia and EM strategist at Morgan Stanley, in a note. interview earlier this month. “Now the Taiwanese locomotive has also left the dock. And then we go further to the middle of the train, which is China.”
–With support from John Cheng.
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