iShares Market Outlook - Trending markets in Asia Pacific

Hi, I’m Thomas Taw, Head of the iShares Investment Strategy and Product Consulting for the EII business in Asia Pacific and welcome to this quarter’s single country APAC outlook.

The year 2021 was one to forget for Asia-pacific stocks with China’s crackdown on private enterprise a drag. The region’s stocks have not lagged the S&P 500 by such a margin ever, creating valuation mismatches across countries. Now we see this as an opportunity and are in general constructive on Chinese and Japanese equities.

Our forecast for the region is based on the macro changes that are ushering in a new regime for global markets. It’s a regime where stocks are seen delivering gains and bonds suffering losses for a second year, and this is a phenomenon we’ve not seen since 1977. With inflation expected to surge, most central banks withdrawing monetary support and Covid-19 is in resurgence, we select markets that offer the best value, supported by local stimulus measures and benefit from rising prices and a re-opening trade.

When it comes to Omicron, we see it delaying – but not derailing – the powerful activity restart that has underpinned a surge in corporate profits. Its impact will vary by country obviously but we still urge investors to stay invested through the COVID-related volatility.

The key question is how China’s zero-COVID policy will stand up against Omicron. The policy so far has proven effective and enjoyed popular support, but has left China with almost no natural immunity. We expect the country to maintain this policy in this very politically important year – as President Xi Jinping seeks a third term. And this raises the specter of more restrictions on activity, from targeted measures that keep the economy humming (i.e. Shanghai) to full-scale lockdowns in places like Xian.  While downside risks to China’s growth have risen, Beijing appears bent on achieving its growth target this year by loosening policy and this has typically favored onshore stocks.

The crackdown on sectors such as technology is set to remain but is unlikely to intensify this year. These factors combined with valuations well below historical averages offering investors adequate compensation and an opportunity to address the under allocation to equities in the world’s second largest economy.

So we are overweight China offshore as well. However, we prefer Hong Kong listed Chinese stocks, especially the beaten down technology names, over U.S. listings, which face the threat of de-listing over the next few years.

Now, an accommodative central bank and record fiscal stimulus is also set to favor the second largest equity market in the region, and that’s Japan. 

We see a global cyclical rebound boosting earnings growth in Japan following an underperformance in 2021.

So we reviewed Japanese stocks’ performances after fiscal stimulus. Since the advent of Abenomics in 2012 fiscal packages have helped deliver a surge in the TOPIX Index and we do not see it being different this time.

The policy divergence underway between the Bank of Japan and the U.S. Fed is set to drive the yen lower. Historically such a trend has favored Japanese equities, given it boosts exporters’ earnings and lures foreign capital into the nation’s stocks.

However, therein stops our positive outlook to the larger markets in Asia and we hold a neutral view on India, Australia, and Taiwan, mainly on valuation concerns.

South Korea is our sole underweight in region as valuation, rising rates and the moderation of semiconductor prices are set to overshadow economic resilience and also resilience against Covid-19.

Now, if you want to know more about this topic, please get in touch with your BlackRock relationship manager. We also host a monthly iShares market update webinar on different investment themes and ideas so be sure to look out for your email invitation. Thanks for watching and see you in the next quarter.

Hi, I’m Thomas Taw, Head of the iShares Investment Strategy and Product Consulting for the EII business in Asia Pacific and welcome to this quarter’s single country APAC outlook.

The year 2021 was one to forget for Asia-pacific stocks with China’s crackdown on private enterprise a drag. The region’s stocks have not lagged the S&P 500 by such a margin ever, creating valuation mismatches across countries. Now we see this as an opportunity and are in general constructive on Chinese and Japanese equities.

Our forecast for the region is based on the macro changes that are ushering in a new regime for global markets. It’s a regime where stocks are seen delivering gains and bonds suffering losses for a second year, and this is a phenomenon we’ve not seen since 1977. With inflation expected to surge, most central banks withdrawing monetary support and Covid-19 is in resurgence, we select markets that offer the best value, supported by local stimulus measures and benefit from rising prices and a re-opening trade.

When it comes to Omicron, we see it delaying – but not derailing – the powerful activity restart that has underpinned a surge in corporate profits. Its impact will vary by country obviously but we still urge investors to stay invested through the COVID-related volatility.

The key question is how China’s zero-COVID policy will stand up against Omicron. The policy so far has proven effective and enjoyed popular support, but has left China with almost no natural immunity. We expect the country to maintain this policy in this very politically important year – as President Xi Jinping seeks a third term. And this raises the specter of more restrictions on activity, from targeted measures that keep the economy humming (i.e. Shanghai) to full-scale lockdowns in places like Xian.  While downside risks to China’s growth have risen, Beijing appears bent on achieving its growth target this year by loosening policy and this has typically favored onshore stocks.

The crackdown on sectors such as technology is set to remain but is unlikely to intensify this year. These factors combined with valuations well below historical averages offering investors adequate compensation and an opportunity to address the under allocation to equities in the world’s second largest economy.

So we are overweight China offshore as well. However, we prefer Hong Kong listed Chinese stocks, especially the beaten down technology names, over U.S. listings, which face the threat of de-listing over the next few years.

Now, an accommodative central bank and record fiscal stimulus is also set to favor the second largest equity market in the region, and that’s Japan. 

We see a global cyclical rebound boosting earnings growth in Japan following an underperformance in 2021.

So we reviewed Japanese stocks’ performances after fiscal stimulus. Since the advent of Abenomics in 2012 fiscal packages have helped deliver a surge in the TOPIX Index and we do not see it being different this time.

The policy divergence underway between the Bank of Japan and the U.S. Fed is set to drive the yen lower. Historically such a trend has favored Japanese equities, given it boosts exporters’ earnings and lures foreign capital into the nation’s stocks.

However, therein stops our positive outlook to the larger markets in Asia and we hold a neutral view on India, Australia, and Taiwan, mainly on valuation concerns.

South Korea is our sole underweight in region as valuation, rising rates and the moderation of semiconductor prices are set to overshadow economic resilience and also resilience against Covid-19.

Now, if you want to know more about this topic, please get in touch with your BlackRock relationship manager. We also host a monthly iShares market update webinar on different investment themes and ideas so be sure to look out for your email invitation. Thanks for watching and see you in the next quarter.

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