Stock Analysts Forecast Asian Market Rebound Following Difficult 2022

It is anticipated that Asian equities will experience a shift in fortunes after two years of poor performance. This is due to China's economic revival and the possibility of a weaker US dollar, which could lead to their outperformance in the year 2023.

Strategists surveyed by Bloomberg have estimated that regional stocks could increase by 9% by the end of 2021. Many of the factors that have been a burden on Asia, such as a strong U.S. dollar, China's Covid-19 restrictions, and a decline in the semiconductor industry, are beginning to dissipate, which could lead to improved earnings.

Frank Benzimra, head of Asia equity strategy at Societe Generale SA, noted that there are multiple changes occurring in the Asian equities market. He further predicted that earnings will experience a resurgence in the second quarter.

The MSCI Asia Pacific excluding Japan Index has seen a significant decrease of 19% in 2022, following a 4.9% decline in 2021. This has caused the index to lag behind its global counterparts. In addition, foreign investors have withdrawn more than $50 billion from emerging markets outside of China this year.

Survey participants did not anticipate a decrease in Asian stocks in the upcoming year, but their forecasts varied greatly, ranging from no change to a 15% increase. This reflects the uncertainty surrounding the potential for a global recession and the challenges of reopening China. Even if the most optimistic prediction is accurate, regional indices are unlikely to reach their 2021 highs.

A survey of Asia fund managers conducted by Bank of America this month revealed that nearly 90% of the participants expected an increase in stocks outside of Japan in Asia.

China's swift removal of its Covid-19 regulations is anticipated to give a much-needed boost to its economy and its trading partners in the region, with an estimated 5% growth rate projected for 2023. Additionally, the Bloomberg dollar index has been steadily declining since its peak in September, which is expected to further contribute to the economic recovery.

Analysts believe that the initial market recovery is being propelled by low prices, followed by an increase in anticipated earnings. The MSCI Asia Pacific ex-Japan Index's projected earnings have grown by 3.6% since the beginning of November, indicating that the downward revisions may have reached their lowest point, while S&P 500 companies are still seeing cuts.

Dan Fineman, co-head of Asia Pacific equity strategy at Credit Suisse Group AG, expressed his belief that Asia will be a strong performer in 2023 in a note this month. He pointed to a number of factors that could contribute to this, such as resilient top lines, superior margins and earnings cycles, a weaker dollar, and an uptick in earnings per share revisions.

Tina Teng of CMC Markets has predicted that China will once again become a viable investment option, reversing the trend of this year and leading to North Asia outperforming its southern counterparts.

South Korea and Taiwan are becoming increasingly popular investments, as they are expected to gain from a rise in the inventory cycle of tech hardware. Several brokers, such as Allianz SE, Morgan Stanley, and Goldman Sachs Group Inc., are recommending these markets.

Christian Abuide, head of asset allocation at Lombard 0dier, suggested that a more cyclical positioning with Korea and Taiwan would be beneficial as growth bottoms out. He also noted that valuations in these countries are attractive.

Sentiment towards markets in the south is becoming increasingly pessimistic. India's high valuations, which have been at record levels, may lead to underperformance, while Indonesian stocks have cooled off in the current month.

It is important to remember that stock experts are usually optimistic when looking ahead to the start of a new year. This was the case for 2022 as well, with many Wall Street analysts recommending Chinese stocks as a good investment, only to be proven wrong when the market experienced a sharp decline.

Despite the hopeful outlook for the upcoming year, there are still many obstacles to overcome. One of the primary concerns is the rate and scope of China's return to normalcy.

Investors will be keeping a close eye on the Federal Reserve for any potential missteps, as well as the ongoing conflict in Ukraine and its effect on agricultural supplies.

Havard Chi, head of research at Quarz Capital Asia Singapore Pte, expressed his concern that the Federal Reserve may be too slow to cut rates. Despite this, he is optimistic about Asian equities and believes that the MSCI Asia Pacific Index could rise by 10-15% by the end of 2023 due to increasing valuations and earnings.

Data from a Bloomberg survey and research notes as of the Thursday close were reported.