Why are Asian stocks rising? And, should you be buying in China, India and Japan? The Sydney Morning Herald reported that for the first time in decades markets in Japan, China and India were all rising together.
For the first time in decades the three biggest sharemarkets in Asia – Japan, China and India – are enjoying synchronised bull runs. Credit Suisse head of equities Asia Pacific Ali Naqvi is tipping the region’s three key markets to continue rising with the support of government policy.
“This is the first time we’ve seen the three big sharemarkets in Asia all humming along together and there are individual reasons why equities in Japan, China and India are all set to keep rising, so the outlook for the region is very positive,” Mr Naqvi said.
In China, the deregulation of financial markets to enable more foreign investment has enabled the benchmark share index to more than double in value over the past seven months.
Why were these Asian stocks rising? The reasons are somewhat individual although government stimulus and support programs are part of the picture. The question for Western stock investors is if this is a good time to buy in. Our concern is that, at least in the case of China that the market is overheated and set to correct very substantially.
India
The Economic Times believes that Indian markets will be positive for the next five years or even a decade.
India remains an attractive investment destination for the next 5-10 years, Christopher Wood, managing director and chief strategist of CLSA, said, adding that the RBI may lower rates by another 125 basis points by the end of 2016.
According him, foreigners have sold remarkably few shares despite the earnings disappointments. FPIs have sold US $151 mn worth of Indian equities since the beginning of May, after buying a net US $7.2 bn in the first four months of this year.
“This reflects the fact that foreign investors mostly own the good companies and many of them have the same view as GREED & fear’s, namely that India is Asia’s best long-term story,” he added.
The new Hindu party government has a business focus which many believe will help India’s economy over the years if not decades. The largest democracy in the world has huge potential provided that a business focus is maintained.
Japan
CNBC talks about why it is that Japanese stocks could continue to out distance the S&P 500.
Japan’s Nikkei index has risen 17 percent this year, far outpacing the S&P’s 3 percent gains. And Oppenheimer technical analyst Ari Wald says that Japanese stocks are set to keep outperforming through the rest of the year.
“We are bullish on the U.S., but one of the markets we’re even more bullish on than the U.S. is the Japanese Nikkei,” Wald said in a Tuesday “Trading Nation” interview.
The technician points out that while the Nikkei has been beating the U.S. lately, if one looks over a 25-year time frame, the Japanese index has been lagging by an incredible 90 percent. That means the Nikkei “has plenty of long-term catch-up potential.”
Japan is slowly pulling itself out of a quarter century of deflation. Measures to weaken the Yen have boosted exports and measures in the local economy have boosted consumer spending and the internal economy as well. As the article says Japan has a way to go to catch up but that could a good sign for investors.
China
The Wall Street Journal reports that Chinese stocks are climbing and making up all of the losses since the start of the Great Recession.
China shares hit their highest levels in more than seven years Monday, bucking weakness in the region amid concerns about a U.S. interest rate increase later this year.
Stocks in Shanghai were up 2.2%, adding to a nearly 9% gain last week, buoyed by expectation of reform in the financial sector and further loosening of monetary policy. The benchmark closed at 5131.88, after breaking the 5000 mark on Friday for the first time since January 2008.
Analysts say inflation data due Tuesday from China could indicate whether the government will roll out additional stimulus.
“Further relaxation in monetary policy is anticipated, as we expect lower [a] CPI figure for tomorrow,” says Xiao Shijun, analyst at Guodu Securities.
The worry for investors in Chinese stocks is that the current rally is based on two things. Investors are fleeing the Chinese real estate market which is deflating and could still collapse. And investors are betting on government stimulus measures to keep the economy going as exports look their worst in years. China’s economic miracle is cooling off and the rapid rise in stock prices is likely to correct substantially when there is a glitch in the real estate market or government support.