Goldman Sachs prefers value cyclicals and short versus long duration ideas
The biggest slump in Asian stocks since March hasn’t unnerved strategists, who recommend buying regional cyclical shares as they expect a strong economic bounce back from the Covid crisis.
Growth can offset rate risks, a Goldman Sachs Group Inc. team including Timothy Moe wrote in a note Monday, saying they prefer value cyclicals and short versus long duration ideas. Sanford C. Bernstein and Oanda Asia Pacific Pte see Asian stocks weathering a global surge in sovereign bond yields to stay ahead of their U.S. peers in 2021.
We stay constructive on regional equities with modest downside risk from higher rates/volatility likely to create buying opportunities on corrections, the Goldman strategists wrote. We would not expect as sharp an equity reaction now unless yields rise more significantly or the Fed signals changes, they said.
The MSCI Asia Pacific Index has outperformed the S&P 500’s advance this year by three percentage points despite its 3.7% plunge on Friday. Asia’s economic revival is predicted to outdo the U.S.: the region’s emerging and developing economies are poised for more than 8% growth in 2021, almost twice as fast as that of advanced nations including the U.S., International Monetary Fund projections show.
Asia should lead global equities this year, said Rupal Agarwal, Asia quantitative strategist at Sanford C Bernstein in Mumbai. The region is recovering the strongest, and rising Treasury yields would be more supportive of a rotation to Asian value stocks, she said.
The MSCI Asia Pacific Index was rose 1.2% in Tokyo, taking its gain this year to 4.5%.
Sovereign yields have climbed on the risk of faster inflation as economies accelerate. While higher long-term borrowing costs can reduce the appeal of equities, some strategists say the U.S. is more exposed than Asia because its stock market is costlier and has more growth shares, such as technology firms.
There may be some short-term downward pressure on the MSCI Asia Pacific index, but in the medium term it’s likely to outperform, said Jeffrey Halley, senior market analyst at Oanda. Unlike tech-heavy North American counterparts, Asia Pacific markets are dominated by cyclical industries, which stand to benefit from the acceleration in the global recovery, he said.
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