Asia’s bulls have legs

Twenty years on from the Asian crisis, "Asia bulls are enjoying a day in the sun", says Pete Sweeney on Breakingviews. The MSCI Asia ex-Japan index has risen to near ten-year highs, while most regional currencies have gained ground against the dollar this year. One reason for confidence is that "there has been no hard landing" in China, the regional heavyweight. For now, at least, the authorities have managed to keep growth ticking over and reduce capital flight, shadow banking and speculation. At the same time, they have allowed more foreign capital into the country's stock and bond markets.

The recent acceleration in developed-market economies and solid consumption growth at home have both contributed to an improving earnings outlook for regional stocks. After several years of flat or slightly negative profit growth, Asia ex-Japan earnings are now expected to rise by around 13% in 2017, as Manishi Raychaudhuri of BNP Paribas points out on CNBC.com.

It also helps matters that the region, and emerging markets in general, look less vulnerable to the global tightening cycle than on previous occasions, says Capital Economics. High US interest rates draw money away from risky assets such as emerging markets because the yield on US assets rises, making them more appealing. But monetary tightening is proceeding incredibly slowly and global liquidity is still abundant. Asian current-account deficits have fallen in recent years, so they are less dependent on foreign capital, and foreign-currency-denominated debt is low, so Asia need not fear a slide in its currencies. Throw in valuations around the historical average, and there is scope for further gains.