Stacks of U.S. one-dollar bills are arranged for a photograph in New York, U.S. (Photographer: Scott Eells/Bloomberg)

A $6 Trillion Reason to Buy Into Asian Equities: Taking Stock

(Bloomberg) -- If BlackRock Inc. chief executive officer Larry Fink is right and global stocks are poised for a “melt up” scenario, several of Asia’s markets may be candidates to help lead that charge.

Most participants are still underinvested in the markets globally, Fink said in an interview with CNBC Tuesday after his company reported earnings. “We have a risk of a melt up, not a melt down,” he said. The head of the world’s largest investment firm, with $6 trillion of assets under management, said “huge pools of money” is sitting on the sidelines as investors haven’t rushed back into equities even as the stock market bounced back this year.

A $6 Trillion Reason to Buy Into Asian Equities: Taking Stock

Fink’s comments come after an already potent rally across multiple benchmark stock indexes this year, with the S&P 500 on the cusp of a record high and the MSCI All-Country World Index about 5 percent away from its January 2018 peak. A dovish pivot from the Federal Reserve and progress on a U.S.-China trade deal have helped offset global economic growth concerns enough to lift stocks higher thus far this year.

A $6 Trillion Reason to Buy Into Asian Equities: Taking Stock

That FOMO theory may have already played out in China and Hong Kong with the Shanghai Composite Index’s propulsive 31 percent surge this year after a massive plunge in 2018 and the Hang Seng Index’s entrance into a bull market this month.

The MSCI Asia Pacific Index’s 11 percent gain this year, however, still lags the global benchmark, mainly since Japan (now the third largest stock market in Asia) has the biggest weighting on the gauge.

A $6 Trillion Reason to Buy Into Asian Equities: Taking Stock

Tokyo stocks have struggled with a lack of investor interest as skepticism remains over the country’s long-term economic health, productivity and corporate earnings. Japan’s Topix index is up 8.6 percent this year, lagging the Asia Pacific benchmark, while foreign investors have net sold more than $17 billion of Japanese stocks as of April 10, according to EPFR data compiled by Jefferies.

Yet an argument can be made for Japan, with Societe Generale SA positive on the country thanks to attractive valuations and strengthening corporate balance sheets.

A $6 Trillion Reason to Buy Into Asian Equities: Taking Stock

Indonesia is also a second-half rebound candidate after Wednesday’s presidential election, with Citigroup Inc. seeing untapped upside from domestic investors that have stayed on the sidelines so far this year while waiting for a result. Foreign investors are already reentering the market, picking up some $1 billion in stocks this year already, the most in Southeast Asia. The nation’s benchmark index rose 0.9 percent Thursday with Joko Widodo set to win a second term as president.

A $6 Trillion Reason to Buy Into Asian Equities: Taking Stock

Another developing market in the midst of an election is India. Overseas investors have snapped up net $8.9 billion of India stocks this year, the most in emerging Asia outside of China, on expectations Narendra Modi will secure a second term as prime minister.

The Sensex is up almost 9 percent this year, hitting a fresh record Wednesday. But with a 12-month blended-forward P/E of almost 19, well ahead of the 10-year average, the index is looking expensive, which may create some short-term pain before further gains. As Bloomberg Macro Strategist Mark Cudmore writes, “there’s room for a sharp short-term correction that wouldn’t derail the long-term uptrend.”

Stock-Market Summary

  • MSCI Asia Pacific Index ex-Japan down 0.3%
  • MSCI Asia Pacific Index down 0.4%
  • Japan’s Topix index down 0.7%; Nikkei 225 down 0.7%
  • Hong Kong’s Hang Seng Index down 0.6%; Hang Seng China Enterprises down 0.8%; Shanghai Composite down 0.2%; CSI 300 down 0.3%
  • Taiwan’s Taiex index down 0.1%
  • South Korea’s Kospi index down 1.1%; Kospi 200 down 1.1%
  • Australia’s S&P/ASX 200 little changed; New Zealand’s S&P/NZX 50 down 0.4%
  • India’s S&P BSE Sensex Index little changed; NSE Nifty 50 down 0.1%
  • Singapore’s Straits Times Index little changed; Malaysia’s KLCI down 0.6%; Jakarta Composite up 0.8%; Thailand’s SET little changed; Vietnam’s VN Index down 0.6%
  • S&P 500 e-mini futures down 0.2% after index closed down 0.2% in last session

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