(Original title: Analyst: Asian stock markets will outperform U.S. stocks next year, China and South Korea may become the biggest winners)
Zhitong Finance APP learned that Asian stock markets are expected to outperform U.S. stocks next year, especially China and South Korea. Asian stock markets are expected to reverse course after a two-year slump, with a recovery in China and a likely weaker dollar driving outperformance in 2023.
Asian stocks could rise 9 percent by the end of next year, the average forecast of 11 analysts said, as most of the negative factors weighing on the region recede, leading to a brighter earnings outlook. “The environment for Asian equities is one of several inflection points that are taking place, with corporate earnings expected to rebound from the second quarter of next year,” said Frank Benzimra, head of Asia equity strategy at Societe Generale.
The MSCI Asia Pacific ex-Japan index is down 19% so far in 2022 after falling 4.9% in 2021, worse than its global peers. Foreign investors have pulled more than $50 billion out of emerging markets so far this year.
Respondents’ forecasts for Asian stocks, however, ranged from flat to a 15 percent gain, underscoring investors’ caution over the risk of a global recession and an uncertain outlook for Chinese equities. While surveys suggest that regional indexes may outperform the S&P 500, they won’t be able to recover to their 2021 peaks even if the most optimistic forecasts come true.
Bank of America’s survey of Asian fund managers this month also showed that about 90% of respondents expect Asian stock markets excluding Japan to rise.
biggest catalyst
China’s liberalization policies are expected to boost the flagging economy and its regional trading partners, growing nearly 5 percent by 2023. Another driver is a weaker U.S. dollar, with the U.S. dollar index on a steady decline from September’s record levels.
Strategists believe the market’s initial rally was driven by low valuations, followed by a rise on profit expectations. Earnings estimates for the MSCI Asia Pacific ex-Japan index have risen 3.6 percent since early November, suggesting downgrades may have bottomed out, while S&P 500 constituents expectations are still being revised down.
Dan Fineman, co-head of Asia-Pacific equity strategy at Credit Suisse, said: “In our view, Asian equities will perform better in 2023. Global investors will move funds from the United States to Asia due to strong revenue, superior margins and earnings. cycle, a weaker dollar, and a positive shift in EPS revisions.”
Tina Teng of CMC Markets said China would become “investable” again as this year’s trend reversed, helping drive East Asian stocks outperforming South Asia. South Korean stocks (and to a lesser extent Taiwan) are emerging as favorites to invest in as they are seen to benefit from an improving tech hardware inventory cycle. Allianz Insurance, Morgan Stanley and Goldman Sachs are also among the brokerages recommending the Chinese stock market.
“With growth bottoming out, a more cyclical allocation to South Korea and Taiwan would make sense and valuations are attractive,” said Christian Abuide, head of asset allocation at Lombard 0dier.
Indian equities are also relatively expensive after a record-breaking streak, which could lead to underperformance, while a wave of enthusiasm for Indonesian equities this month is unraveling.
biggest risk
A key thing to note is that analysts tend to be bullish heading into the new year. Despite the optimism, challenges remain for next year: Global risks remain high from a possible policy misstep by the Federal Reserve and ongoing disruptions to agricultural supplies from the Russia-Ukraine conflict.
Harvard Chi, head of research at Quarz Capital Asia Singapore Pte, said: “The current black swan is that the Fed is ‘too late to cut interest rates’. However, it is generally bullish on Asian stock markets. It is expected that by the end of 2023, driven by improved valuations and earnings, Morgan Stanley The international Asia-Pacific index will be up 10-15%.”