Top-Performing Asian Stock Markets Shrug Off Fed, China Risks




  • In Business
  • 2022-08-06 00:00:00Z
  • By Bloomberg

(Bloomberg) -- A case is building for Indonesia and India -- this year's leading stock markets in emerging Asia -- to maintain their edge.

Most Read from Bloomberg

  • China Announces Sanctions on Nancy Pelosi Over Taiwan Trip

  • Democrats Drop Carried Interest as Sinema Paves Way for Tax Vote

  • R Kelly Has $28,000 in His Prison-Inmate Account. Prosecutors Want to Seize It

  • China Likely Fired Missiles Over Taiwan in Drills, Japan Says

Both markets are benefiting from domestic demand that's rebounding as the pandemic's impact wears off, with the latest earnings season bringing positive surprises in key sectors. Slowing growth and macro risks in China is another reason for investors' preference for these two destinations.

Beyond these common drivers, India is seeing a return of foreign investors that's supercharging a market buoyed by an unprecedented retail investing boom. In Indonesia, the central bank has so far bucked the global tightening wave to keep rates at a record low, providing growth support as a commodities export boom offers a tailwind.

The Jakarta Composite Index has gained almost 8% so far in 2022, steadily leading the pack throughout the year. India's NSE Nifty 50 Index has surged 10% in just the past month to be little changed for the year, still bucking the 19% slide in the MSCI EM Asia Index.

"I would be surprised if from here, either on local currency or dollar terms, the two countries don't outperform," said Vikas Pershad, a portfolio manager at M&G Investments. "The bottom-up earnings story seems pretty constructive and the top-down flows story in the region and relative macro uncertainty seems less."

The resilience of the two markets stands out given that Asian stocks as a whole have lagged their US and European peers this year, and MSCI Inc.'s gauge of global stocks has also fallen by double digits.

A stronger dollar and rising global rates have hit tech-heavy markets like South Korea and Taiwan, while China has yet to find a bottom as its Covid Zero strategy, a property crisis and unpredictable regulations weigh on share prices.

India and Indonesia are the only two Asian markets with "China insulation," as they have posted a negative return correlation with the MSCI China Index over the past two years based on monthly returns, Goldman Sachs Group Inc. strategists wrote in an Aug. 3 note.

Other banks have cited Indonesia, with its large domestic market and energy-export strength, as having weathered US downcycles in the past. India's advance has gathered momentum in recent weeks as foreign flows turned positive for the first time in months.

Several banks in India -- a sector that makes up more than a fourth of the Nifty 50 gauge -- beat profit estimates for the latest quarter on higher mortgage and loan demand. After dipping from their July highs, forward earnings estimates for the Nifty gauge have started climbing once again.

To be sure, with the Reserve Bank of India's half-point rate hike on Friday, the central bank's hawkish stance and inflationary pressures are headwinds.

In Indonesia, though, the economy appears to be in a rare sweet spot. Core inflation is below 3%, giving the central bank room to hold rates for a little longer. And with last quarter's growth beating estimates on reopening and booming exports, it's got the highest net foreign inflows this year among developing Asian markets -- $3.8 billion. Forward earnings estimates for the equity benchmark have also stabilized.

"Better results, better flows in the case of India, a depreciating but not wildly volatile currency in Indonesia sets the stage for why these two economies are outperforming," said Zhikai Chen, head of Asian and global emerging market equities at BNP Paribas Asset Management.

Most Read from Bloomberg Businessweek

  • A Very Dangerous Place to Be Pregnant Is Getting Even Scarier

  • Podcast Guests Are Paying Up to $50,000 to Appear on Popular Shows

  • It's Getting Harder to Be a Woman in America

  • AI Art Software Dall-E Moves Past Novelty Stage and Turns Pro

  • Amazon's Roomba Deal Is Really About Mapping Your Home

©2022 Bloomberg L.P.

COMMENTS

More Related News

New York Gasoline Supply at Risk as Stockpiles Hit Decade Low
New York Gasoline Supply at Risk as Stockpiles Hit Decade Low

(Bloomberg) -- The wholesale cost of gasoline in New York surged more than 40% against futures after regional supplies sank to the lowest level in a decade, ...

Apple Inches Closer to Erasing 2022 Losses as Inflation Cools
Apple Inches Closer to Erasing 2022 Losses as Inflation Cools

(Bloomberg) -- Apple Inc. is close to erasing its losses for the year as softer-than-expected inflation data fueled a risk-on rally in the stock market...

Satellite data finds landfills are methane
Satellite data finds landfills are methane 'super emitters'

Landfills are releasing far more planet-warming methane into the atmosphere from the decomposition of waste than previously thought, a study suggests...

Thiel-Backed Firm Debuts Anti-ESG ETF to Urge More Drilling
Thiel-Backed Firm Debuts Anti-ESG ETF to Urge More Drilling

(Bloomberg) -- An anti-activism exchange-traded fund of sorts has launched to supposedly "unshackle" energy companies from climate concerns that some...

STMicroelectronics Is a Chip Off the Old Semiconductor Block
STMicroelectronics Is a Chip Off the Old Semiconductor Block

The chip company is flourishing as a small but profitable force in the semiconductor industry

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business