Investors Should Turn Cautious About Asia's High-Growth Stocks, Quants Say
Quants Say High-Growth Asia Stocks Face Reckoning After Nasdaq Drop
(Bloomberg) -- The days of handsome gains from betting on Asian equities that are rising strongly may be coming to an end.
Investors should be cautious about such momentum stocks, according to quantitative analysts at Macquarie Group Ltd., Sanford C. Bernstein and Morgan Stanley. Their comments follow a climb of more than 70% in the MSCI Asia ex-Japan Momentum Index from March’s pandemic lows, a surge that surpassed the rally in the Nasdaq-100 gauge.
“There’s definitely a good chance of contagion from the Nasdaq sell-off through to Asian style returns and specifically momentum,” John Conomos, Macquarie’s head of Asia-Pacific quantitative strategy in Sydney, said in emailed responses to questions on Monday.
A drop of more than 8% in the Nasdaq-100 this month sparked fresh questions about whether technology firms will continue to lead the equity market rebound despite elevated valuations. Some strategists argue value stocks -- those trading at low prices relative to earnings or the worth of their underlying businesses -- may grab the limelight instead.
Conomos characterized the recent moves in Asia as “momentum exhaustion” rather than a change in market leadership toward value.
Nasdaq-100 futures indicated some respite for the equity gauge at the start of the week, advancing 1.4% as of 10 a.m. on Monday in London.
MSCI’s momentum gauge features technology and e-commerce stocks such as Meituan Dianping and JD.com Inc., which have more than doubled this year. The MSCI index dropped in six of nine trading sessions through Sept. 11.
“Sentiment is definitely turning against momentum,” said Rupal Agarwal, a quantitative strategist at Sanford C. Bernstein. Those wishing to keep exposure to technology are better off shifting into cheaper names such as Samsung Electronics Co., SK Hynix Inc. and United Microelectronics Corp., she said.
“The most vulnerable space within technology is the most expensive names that have gone up more than 100% lately,” she said in an interview.
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Morgan Stanley recommends investors take profits from Asian stocks with high price momentum, and expects the current sell-off to be “a rotation, not a collapse,” quantitative strategists including Gilbert Wong wrote in a Sept. 10 note.
“Price momentum has now surpassed growth as the most crowded factor in MSCI AC Asia ex-Japan,” Chris Ma, head of Asia quantitative research at Citigroup Inc., said in an email interview on Monday. While crowding doesn’t necessarily lead to poor performance, it does signal higher risk, he added.
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