Credit Suisse Says Asia Stocks to Outperform in Second Half
Credit Suisse has an underweight rating on India.
(Bloomberg) -- Asia excluding Japan stocks are set to outperform other emerging markets in the second half of 2020, supported by a weakening U.S. dollar, improving economic data and monetary policy support, according to Credit Suisse Group AG.
“If there is any region that stands to benefit from the beginning of the resumption of normal activities in the world economy, Asia stands out because of its export dependence,” Ray Farris, the bank’s chief investment officer for South Asia, said in a phone interview. Asian economies are also able to ease monetary conditions and increase domestic liquidity better than some other regions where the currencies are “under a lot more pressure,” he added.
With China reopening its economy ahead of others, Asian economies are expected to be among the first to recover amid billions of dollars in stimulus, easing infection rates and an uptick in consumer spending. Bright spots have already emerged such as improving Chinese data for consumer demand and industrial output as well as easing shipment declines in South Korea this month. The regional stock benchmark is about five percentage points away from erasing losses for the year, outpacing the rebound of its emerging market counterpart.
Credit Suisse is also betting on the further weakening of the U.S. dollar, which has already depreciated 2% versus ten major currencies this year. Improving prospects for global growth and expectations of low interest rates in the U.S. through 2022 will all support the strengthening of Asian currencies versus the greenback, Farris said.
If the dollar weakens further and “these markets begin to perform, then foreign money will return as well, chasing the returns in the domestic market and the currency,” he added.
Here are the bank’s recommendations for Asian equities in the second half of the year:
- “Outperform” weighting on Taiwan because of technology hardware-related companies.
- Prefers Hong Kong and Indonesia on valuations; “Indonesia is about an economy that has been beaten down a bit and should, especially at a consumer level, recover in the second half of the year,” Farris said.
- “Underperform” weighting on India and Malaysia.
- Expects Singapore equities to perform in line with regional markets as the slow recovery and the impact of low interest rates offset “attractive” valuation of the market.
- Bank is maintaining a small overweight in equities in its overall investment strategy.
©2020 Bloomberg L.P.