Asia’s bulls have legs

published 22 September 2017

863-China-bull-634 — There's no stopping the China bull

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.

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Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.