OVERVIEW
Asia Equity Strategy
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Adjusting to the new normal
Growth reacceleration remains the missing ingredient with medium term growth remaining well below start of the year levels.
As such, stocks exposed to the megatrends, including 5G and Social Distancing names, should continue to shine despite high valuations; and domestic demand, notably in China, should remain another driver of equities.
Add some cyclical flavour
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Adjusting to the new normal
Equity fundamentals have started to improve, slowly, with the new Fed framework, a lessening of headwind from
currencies, improving PMIs and bottoming out trade. The Asia equity trade is not crowded as foreign flows
into Asian equity markets have not recovered from the sudden drop in March. Some negatives remain: earnings
are contracting; US/China tensions are escalating and equity returns have been concentrated in few names.
On the whole, our Equity Strategists expect modest increase in Asian equity markets, led by China.
OVerview
China’s new “dual circulation” to
cope with US/China tensions
Markets reaction to rising tensions between the US and China has so far been muted as there was no tariffs hike, no retaliation from China and no measures to restrict USD funding at China or HK banks.
Whatever the outcome of the US elections, China’s policy is expected to remain central for the US Administration. In this context, one of China policy goal will be to reduce dependency on global demand and foreign technology, and implements efforts to stimulate domestic consumption.
For equity markets it reinforces the domestic (infrastructure, tech, consumption…) vs exporter theme. China equities remain an overweight: there is no exuberance in the China bull market, financial integration is deepening, and de-correlation from global equities is a desirable quality at time of heightened volatility.
The return of currency volatility
The USD has strengthened against emerging currencies but weakened against G10 currencies, which implies a divergence between EM FX and G10 currencies.
Latam currencies have depreciated while Asia peers have stabilized. A stronger yen is not necessarily a sell signal for Japan equities in a context of a decreasing JPY/NKY correlation, but it will likely impact sector leadership.
In Asia, it may well mean less dispersion between North and South Asia equities.
Macroeconomic policies of the newly appointed PM Suga are
expected to remain largely unchanged. The difference could come from the regulatory agenda, a program of structural reforms aimed
at lifting productivity.
For equity investors, there is a cyclical bias in Suganomics as we could expect more regional banks competition and tariff cuts in mobile phone. The creation of a digital office and the stress on the digitalization of the economy supports the tech sector.
On the long term, two themes should support share prices: corporates look well adapted to a post-pandemic world as they have built resilient balance sheets; and the restructuring story is alive and well, with much of the market still trading below book. Berkshire’s recent investment in Japanese trading companies can be seen in this light.
What about Japan?
This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
© Societe Generale 2020
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Asia Equity Strategy
Add some cyclical flavour
China’s new “dual circulation” to
cope with US/China tensions
What about Japan?
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Equity fundamentals have started to improve, slowly, with the new Fed framework, a lessening of headwind from
currencies, improving PMIs and bottoming out trade. The Asia equity trade is not crowded as foreign flows into Asian equity markets have not recovered from the sudden drop in March. Some negatives remain: earnings are contracting;
US/China tensions are escalating and equity returns have been concentrated in few names. On the whole, our Equity Strategists expect modest increase in
Asian equity markets, led by China.
China’s new “dual circulation” to
cope with US/China tensions
Growth reacceleration remains the missing ingredient with medium term growth remaining well below start of the year levels.
As such, stocks exposed to the megatrends, including 5G and Social Distancing names, should continue to shine despite high valuations; and domestic demand, notably in China, should remain another driver of equities.
The return of currency volatility
Growth reacceleration remains the missing ingredient with medium term growth remaining well below start of the year levels.
As such, stocks exposed to the megatrends, including 5G and Social Distancing names, should continue to shine despite high valuations; and domestic demand, notably in China, should remain another driver of equities.
What about Japan?
Markets reaction to rising tensions between the US and China has so far been muted as there was no tariffs hike, no retaliation from China and no measures to restrict USD funding at China or HK banks.
Whatever the outcome of the US elections, China’s policy is expected
to remain central for the US Administration. In this context, one of China policy goal will be to reduce dependency on global demand
and foreign technology, and implements efforts to stimulate
domestic consumption.
For equity markets it reinforces the domestic (infrastructure, tech, consumption…) vs exporter theme. China equities remain an overweight: there is no exuberance in the China bull market, financial integration is deepening, and de-correlation from global equities is a desirable quality at time of heightened volatility.
By continuing to use our website, you are accepting our use of cookies. The cookies we use are "analytical" cookies. They allow us to recognise and count the number of visitors and to see how visitors move around the site when they are using it. To find out more or to change your cookie preferences, please refer to our cookies policy.
ACCEPT
#contentwithimpact
Contact
This page contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale, at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of the Societe Generale group. This content has been prepared for use by institutional and professional investors and is not intended for retail investors. Investors should consider this report as only a single factor in making their investment decision.
© Societe Generale 2020
Cookies Policy
Legal Information