(Bloomberg) — From trading desks to Wall Street analysts, positive calls are on the rise for Asian stocks this year as earnings outlooks, valuations and flows all head up.
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The rally since late October has pushed the MSCI Asia Pacific Index up nearly 23%, outperforming the US benchmark by the most since 1993 and beating its European peers. The main driver has been China’s reopening, with the weakening dollar providing additional impetus as investors look to recession-proof markets.
Heading towards its best start to the year since 2012, the MSCI Asia index rose 7.2% in January. According to a survey by Bank of America Corp. and America.
Gary Dugan, chief executive officer of the Global Office of CIO, an asset manager, said: “Given fears of an economic slowdown in the developed world, the outlook for the Chinese authorities is bullish. Their domestic growth has made both China and Asia’s assets overall more attractive to global investors. and financial consulting firms. “We have increased our share in Asia and see that this can work for months.”
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China has received most of the attention during Asia’s rally, with the MSCI China Index up more than 50% since late October. But optimism is also running rampant. Benchmarks in the Philippines and Vietnam have entered a bull market this month while Taiwan is approaching this mark.
BofA’s Asia Fund Management Survey shows that 95% of investors expect stocks in Asia Pacific, excluding Japan, to rise over the next 12 months, and about half of them predict a two-year gain. numbers. Most fund managers are “very bullish on China,” it added.
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The flows are reflecting a shift in the seismic view. Foreigners bought $16.5 billion worth of mainland Chinese stocks in January alone, the largest monthly inflow on record. They also poured $3.3 billion into South Korea and $4.5 billion into Taiwan.
Even with the recovery, Asia’s valuation is unlikely to be stretched. The region’s MSCI benchmark is trading at 12.9x forward earnings estimates, in line with its five-year average.
To be sure, the economic slowdown in the developed world could dent some of the nascent optimism for Asia, especially for export-dependent markets like South Korea. And as China’s economy returns to a strong pace, there is a risk that inflationary pressures will increase, which could prompt central banks to pursue a longer hawkish policy.
Meanwhile, earnings paint a promising picture. According to Bloomberg data, 12-month forward returns estimates for the MSCI Asia benchmark have risen about 6% since the end of October, compared with a decline of at least 1% for each of the major U.S. metrics. and Europe, according to Bloomberg data.
“There are not any economies in Asia at risk of recession,” Bernstein strategists led by Sarah McCarthy wrote earlier this month. “On a 12-month forward basis, we expect Asian equity markets to end 2023 on a positive note.”
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