Credit Suisse Smiles On Asian Stocks, Fixed Income

Tom Burroughes

30 September 2016

Credit Suisse has turned positive on Asian equities because it sees signs that the region’s economy is stabilising and as valuations are relatively inexpensive.

In an investment update, the Zurich-listed lender said South Korea and Asia are its preferred equity markets, while it is negative about Indonesian markets, in part because of expensive valuations for that country.

“We believe the recent market consolidation presents an opportunity to add exposure to Asia as less-hawkish comments from the US Fed has provided a healthy backdrop for a further rally,” the bank said.

“Market fundamentals are also aligning for a constructive medium-term outlook for Asia with initial signs of stabilisation in the Chinese economy,“ it said.

The bank said it recently raised its 2016 and 2017 gross domestic product growth forecasts for China to 6.6 per cent and 6.3 per cent, respectively. A recovery in exports in South Korea and Taiwan also indicates that perhaps the worst might be over for the regional external trade, the bank said.

The comments come at a time when, after months of fretting about last year’s falls to China equities and concerns about fragility to its financial system, some of those nerves have eased. Even so, the level of debt in China, and its wealth management products sector, remain areas of concern. Matthews Asia, a specialist asset manager, recently explored the debt situation for China .

Tech sector
Credit Suisse said Asia’s technology sector is the growth leader across the region, led by China, Korea and Taiwan, and that this is positive for regional markets because of the tech sector’s weighting .

“While the market valuation appears fair on a stand-alone basis with the MSCI Asia ex-Japan Index trading at a P/E 2017 of 12.9, the region is the most attractively valued within the emerging markets space and is trading at the lowest premium to the latter vs. its 10-year average,” it said.

Fixed income
The bank said it remains positive on fixed income in Asia.

The decision of the US Federal Reserve recently to leave rates unchanged and signal a “more dovish economic outlook” means investors expect a relatively shallow trajectory for rate rises in the US going forward, with implications for other regions.

“As such, we prefer -denominated investment-grade bonds issued by Asian companies, which typically offer a higher spread pick-up over globally comparable bonds, and which has returned a most satisfactory year-to-date total return of 8.4 per cent. We remain overweight in emerging markets hard currency bonds,” the Swiss bank concluded.