Unfazed by Volatility, Goldman Stays Bullish on Asian Equities

(Bloomberg) -- Goldman Sachs Group Inc. strategists led by Timothy Moe have brushed off equity market volatility and are sticking with their bullish call on Asian stocks.

A volatile first quarter, trade war between the U.S. and China and rising interest rates haven’t shaken their investment thesis for Asian equities, according to an April 9 report published by Moe and his team.

Goldman’s group of market watchers reaffirmed their overweight call on Asia excluding Japanese equities and raised the 12-month estimate for the MSCI Asia Pacific Ex-Japan Index to 640 from 630, citing an improvement in earnings growth in the region and two potential catalysts from China.

“Asian fundamentals are solid as macro and earnings growth remain robust and valuations are inexpensive,” the strategists said. Trade policy and rate concerns don’t warrant a change in the firm’s view unless there’s a significant escalation in restrictions and any trade-related weakness is a buying opportunity, they added.

The MSCI Asia Pacific Ex-Japan was up 0.7 percent to 569 index points at 10:30 a.m. Hong Kong time on Tuesday. China’s President Xi Jinping struck a conciliatory tone in a keynote speech to the Boao Forum for Asia, lifting risk assets.

Here is a breakdown of Goldman’s country recommendations:

China

• Remains overweight on H-shares and introduces A-shares as overweight
• Sees two upcoming catalysts: China tech stocks listing on the domestic market through China depository rights and the inclusion of A-shares in the MSCI global indices at the end of May
• “Clear and reliable policy” provided after the National Party Congress contrasts with lower visibility in many other economies

Korea

• Lowers Korea to market-weight from overweight
• All markets saw improvement in earnings except for Korea and earnings expectations are likely to reset in the next few months as some estimates, such as margin forecasts, look too optimistic
• There are few imminent catalysts that could drive outperformance

Asean

• Upgrades Philippines and Singapore to neutral, downgrades Thailand to underweight
• Singapore is likely to see moderate earnings growth of 12% after a weak 2017 as banks’ profits rise and property recovers
• Philippines stocks have seen a strong underperformance in the last 6 months, which is the primary reason for the neutral upgrade
• Thai bank fundamentals are deteriorating and the asset quality of consumer loans looks to have worsened. The market is also expensive even as earnings growth is one of the lowest in the region

--With assistance from Eric Lam and Ron Harui

To contact the reporter on this story: Livia Yap in Singapore at lyap14@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Cormac Mullen

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