South-East Asian, Chinese and Hong Kong stocks will outperform other Asian markets next year as strengthening currencies boost consumer purchasing power, according to JPMorgan Chase & Co.
Investors should favour these markets over South Korea and Taiwan, which are reliant on exports, and Australia, where interest rates are rising, Adrian Mowat, JPMorgan’s Asian equities strategist, said in an interview. Asia as a whole will continue to lure money from overseas investors, he said. “Our message is we get yet another very good year of equity returns,” Mowat, 41, said. “We have factors that have been helping our markets do well and making valuations go up and these factors are still in place.”
The Morgan Stanley Capital International (MSCI) Asia Pacific Index has climbed 15% this year—almost double its global equivalent, the MSCI World Index, as investors bet on stronger earnings growth in a region that’s home to China and India, the two fastest growing major economies.
“People are very keen on the outlook for the Asian region,” Mowat said. “Our economies are very strong, inflation is building.”
Singapore’s Straits Times Index is forecast to rise 33% by the end of 2008 from its 9 November level, while Hong Kong’s Hang Seng Index is estimated to increase 22%, Mowat said. That contrasts with 7% for Australia’s S&P/ASX 200 Index and 16% for Korea Composite Stock Price Index.
Strengthening currencies in countries such as China, Singapore and the Philippines will increase the purchasing power of residents in those countries, said Mowat. Currency gains boost the value of assets in dollar terms as well as returns for dollar-based investors.
Singapore’s dollar has gained 5.8% against the US dollar in the past three months, the best performer among Asian currencies after the Philippine peso, which has advanced 7.3%. China’s yuan, whose value is managed against the currencies of the country’s trading partners, has risen 2.1%.
“Stronger currencies are good for consumption,” Mowat said. “If you as a consumer have to pay for your food and energy in US dollars, then a stronger currency helps.”
Underpinning the Asian equities story this decade is economic growth. The World Bank on Thursday estimated East Asia’s economies will in 2007 expand at the fastest pace in more than 10 years as China’s accelerating growth offsets a slowdown in US demand for the region’s goods.
East Asia, which excludes Japan and the Indian subcontinent, will grow 8.4% this year, the World Bank said in its semi-annual report on Thursday—faster than the 7.3% rate it predicted in April.