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Asia market views

23-Okt-2017
By BlackRock

Key takeaways

  • Malaysia stifles returns as Korea goes from strength to strength
  • China set to improve growth quality
  • Abe victory to boost Japan’s trajectory

Explore our views in more detail

 


Korea attracts $1.7bn of
foreign inflows

Asian equities delivered flat performance this past week after a sharp rally earlier in the month. Korea led the region, while countries in the Association of Southeast Asian Nations (ASEAN) lagged. The Korean equity market rose to a new historical high as Q3 earnings outlook continued to improve and foreign investors became net buyers of Korean equities. Weekly foreign net flows in emerging Asia turned positive for the first time since July driven by more than USD1.7bn foreign net inflows into Korea. ASEAN markets continued to underperform so far in October, with Malaysia underperforming the most.

Zhou’s shock credit warning hits Hang Sang Index

One of the most anticipated political events this year has been China’s 19th National Party Congress that started last Wednesday (October 18), at which President Xi delivered a report setting the key themes for the Chinese economy. No major policy change was mentioned in the report but the quality of growth has been emphasised. While the leadership reshuffling will not be known till the Congress concludes on October 25, given the current robust economic growth and macro environment in China, we expect a shift in focus from pro-growth stability to pro-reform and the continuation of China’s reform agenda. We believe the two most important themes will be corporate deleveraging and wider implementation of supply-side reform, with implementations on One Belt, One Road, anti-pollution and state-owned enterprise (SOE) reforms also top priorities for President Xi.

Speaking on the sidelines of the Party Congress in Beijing, domestic risk factors such as deleveraging continue to linger. Zhou Xiaochuan, governor of the People’s Bank of China (PBoC), used the term “Minsky moment” to warn against complacency given the current period of solid economic growth and to raise concerns over credit growth and speculative investment. Mr Zhou’s comment dumbfounded investors and last Thursday prodded Hong Kong stocks to its biggest fall in two months. Hong Kong’s Hang Seng Index soon recovered on Friday, but the warning on trouble and unpopular decisions ahead is clear.

The policy efforts relating to Xi’s reform initiatives and PBoC’s intention to rein in the finance system could potentially lead to weaker economic activities but the structural adjustments will add to the Chinese economy’s resilience in the long run. As such, we continue to take a constructive view on China’s slowdown.

Abe win reinvigorates
economic stimulus

In Japan, equities rose sharply over the past two weeks on anticipation of a victory by Prime Minister Shinzo Abe and a larger majority for his Liberal Democratic Party (LDP) in the snap election on October 22. The election on Sunday turned out to be a big victory for Abe as exit polls showed him close to two-thirds majority needed to revise Japan’s constitution. A win of this scale gave Abe and his ruling LDP a fresh mandate for economic stimulus and Abe’s economic policies, including monetary policies which have been supportive to the economy, will likely continue.

Country views by BlackRock Asian Fundamental Equity Team

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