Asia Shows Composure as U.S. Equities Gyrate: Taking Stock

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Asian investors appear confident the current gyrations in U.S. tech stocks will not spark the same level of swings in the Asia Pacific region, according to at least one key indicator.

While a gauge of 10-day volatility in the S&P 500 Index spiked to a two-month high last week amid the accelerating selloff in tech, a similar measure for the MSCI Asia Pacific Index has held steady, according to data compiled by Bloomberg. That suggests a degree of composure in the region, even if stocks remain under pressure.

Asia Shows Composure as U.S. Equities Gyrate: Taking Stock

The Asia Pacific benchmark was little changed Monday, and is down just 1.1% so far in September following a five-month rally. The S&P 500 by contrast has fallen 2.1% and the Nasdaq 100 is down 4% in a volatile start to September.

Pictet Wealth Management sees a contrast between the two regions.

With U.S. technology stock valuations looking stretched ahead of the November presidential election, the firm downgraded its U.S. equity allocation to underweight from neutral and is taking a more optimistic approach to north Asian equities, according to a note Monday.

“While underweight global EM, we are positive on northern Asia on the grounds of superior economic and earnings dynamics” as well as the restrained response of China to U.S. pressure, progress combating Covid-19 and a more favorable sectoral mix, Pictet said.

Meanwhile, the earnings outlook for corporate Asia appears positive, especially for tech, according to Sanford C. Bernstein strategists Rupal Agarwal and Anusha Madireddy.

More than half of the companies in the MSCI Asia ex-Japan Index that have reported second-quarter results managed to meet or beat earnings estimates, led by 72% of technology names, the strategists said in a note Sunday. Almost 60% of technology firms met or exceeded revenue expectations, just behind financials among the winners, they said.

Technology and consumer non-cyclical names are the only two industries that saw growth in both earnings and sales in the quarter, the pair added.

Overall, the earnings beat ratio is up sharply compared with last quarter and is also well above the five-year average of 46%, the strategists said.

“Technology and communications along with materials and industrials are expected to drive growth from next quarter,” Agarwal said in an email.

©2020 Bloomberg L.P.

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