“China’s growth recovery and north Asia’s earnings rebound in 2024 remain our key investment themes and overweight areas,” Goldman Sachs’ strategists, led by Timothy Moe, wrote in a Saturday note.
Vcg | Visual China Group | Getty Images
It’s been a dramatic quarter for Asia-Pacific stock markets, but strategists are expecting the region to be in better shape than its global peers.
Stocks in the Asia-Pacific were mixed on the first day of trade of the second quarter of the year, with economists predicting China’s recovery will cushion the dampening effect of high global interest rates on the regional economy.
Mainland China’s bourses led gains in the wider region on Monday, with the Shenzhen Component closing its session 1.4% higher and the Shanghai Composite up by 0.72%.
“China’s growth recovery and north Asia’s earnings rebound in 2024 remain our key investment themes and overweight areas,” Goldman Sachs’ strategists, led by Timothy Moe, wrote in a Saturday note.
The firm reiterated its expectations for China’s economy to grow by 6% this year — more than the government’s target of “around 5%.” The Goldman strategists said their views are supported by strong activity data seen in the previous quarter.
China’s official manufacturing purchasing managers’ index rose to 52.6 in February, marking the highest reading of factory activity data since April 2012, before falling to 51.9 in March.
S&P Global Ratings, in its second quarter outlook report, added that although China’s growth may not completely erase the impact of a global slowdown on Asia-Pacific markets, it will provide some support.
“China’s economy is on track to recover this year. For other economies this will dampen but not offset the hit of slower growth in the U.S. and Europe, the fading impact of domestic re-opening post the pandemic, and higher interest rates,” S&P’s Asia-Pacific economists Louis Kuijs and Vishrut Rana wrote in the report.
“We maintain our cautiously optimistic outlook for Asia-Pacific,” S&P economists wrote.
‘Rollercoaster’ Q1
Goldman Sachs strategists pointed to the volatility seen in Asia-Pacific stocks in the first quarter for the year.
“The first quarter of 2023 was a rollercoaster for investors in Asian regional equities,” the strategists wrote in the note.
The MSCI Asia Pacific ex-Japan index saw gains of roughly 11%, peaking at around 560 levels at the end of January.
It erased all of the gains by mid-March to fall below levels seen at the start of the year, and recently saw a rally of about 5%. That puts the index at a year-to-date gain of 3.62% as of last week’s close.
The index fell nearly 0.24% in a volatile first trading day of the quarter on Monday.
‘Relatively resilient’ to banking stresses
Goldman Sachs strategists added that overall macroeconomic conditions are beneficial for markets in the Asia-Pacific.
“The partial replacement of expectations of higher Fed rate hikes by lower US growth is relatively more favorable for most Asian economies,” Goldman strategists wrote, adding that “Asia appears relatively resilient to the recent DM [developed markets] banking stresses,” referring to recent banking turmoil in the United States and Europe.
BNP Paribas took a similar view.
“We think risks to Asian banks are limited,” BNP Paribas’ Manishi Raychaudhuri said in a March 27 note, describing the region’s debt-to-GDP ratios as relatively “safe.”
“Asia’s USD debt fell over the past 3 years and most Asian economies’ forex reserves appear safe relative to forex debt,” he wrote in the note.
“Liquidity remains abundant in Asia. Interest rates also have not risen too sharply in Asia,” he said.
