What Investors Will Be Betting on Next Quarter
(Bloomberg) -- Asian stocks are looking unusually calm as the worst quarter since the global financial crisis draws to an end. While investors remain cautious about further volatility, the recent bounce has emboldened them to focus on what to bet on in the days to come.
For William Yuen, investment director at Invesco in Hong Kong, countries that have seen the coronavirus pandemic stabilize and are on the path to resume economic activity are better positioned than those that are still in the process of containing the outbreak. Key events to watch are the spread of virus in Europe and the U.S., a breakthrough treatment and recovering economies, he said.
His view echoes that of Margaret Yang, a strategist at CMC Markets Singapore Pte., who says China, as the first major economy to weather through the outbreak, has a better chance of beating regional peers in the second quarter.
“Policy makers may shift to address domestic consumption with more fiscal stimulus, even shopping coupons,” she said. “The technology (5G, cloud, gaming) and consumption sectors may outperform.”
The first quarter, which saw the MSCI Asia Pacific Index lose 20%, was brutal for many markets in the region. India and Australia’s equity gauges are set for record quarterly drops, while an index tracking Southeast Asian markets is heading for a 31% slump, its worst quarter since 1998, amid lockdowns and trading halts.
The good news for the region is valuation has been knocked back to as low as 10.6 times estimated earnings for the next year, the least since 2012.
Here is what analysts and investors say about some of the region’s markets.
“2Q might turn out to be a turbulent quarter for the STI, as the export- and tourism-reliant economy gets badly hurt by travel bans and supply-chain disruption,” CMC Markets’ Yang said. “The falling crude-oil price is hurting Singapore’s economy too. With rising domestic Covid-19 cases, the likelihood of a full lockdown is on the course of rising. The Singapore stock market may underperform global peers in 2Q.”
Japanese stocks have not yet factored in “how bad the earnings will be hurt because of the coronavirus outbreak,” said Katsuyoshi Sakase, general manager of the equity research department at Aizawa Securities Co. “The country could be heading toward a lockdown from here.”
Still, some stocks are seeing buyers. “We are focused on Toyota and Takeda Pharma,” said Thomas Reyes, chairman at Great Hill Capital in New York. “Both are solid holds for the long term (trading at a discount), and Takeda may even get a short-term bump if its blood-plasma treatment for Covid-19 is approved in the near term.”
“We don’t think the market recovers in a straight line,” Citigroup Inc. analysts Surendra Goyal and Vijit Jain wrote in a note. “We believe that volatility is here to stay in the near term, given so much is still unknown about the trajectory of the infection and related global lockdowns, etc. We advise buying the dips and sticking to large, liquid names.”
“The real economy will be battling very hard as the country increases the scale of testing that will bring in more uncertainty about when any level of lockdown restrictions can be removed,” said Sameer Kalra, founder of Target Investing in Mumbai. “Mid-cap and small-cap companies will be in the high-risk zone as cashflow mismatch will be high.”
“Investors may remain cautious until there is evidence of new cases slowing, which could take a few more months as the government has just recently ramped up testing,” Jody Santiago, an analyst at UBS Group AG, wrote in a note. “Earnings of companies that may be less affected are those that provide basic services such as grocery operator Puregold and telecom operators PLDT and Globe Telecom.”
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