China reopening, earnings rebound to boost North Asian equities … – Reuters

May 18 (Reuters) – Equity markets in North Asia will outperform the broader region this year, buoyed by China's reopening and a post-pandemic recovery-led earnings rebound, investors and strategists said.
Liquidity from easing monetary and fiscal policy, along with Asian central banks' early victory on inflation, is expected to defend against an incoming downtrend, keeping North Asian equities resilient.
Grace Tam, chief investment officer-Asia at BNP Paribas Wealth Management, expects North Asia to outperform this year following a strong 2022 from South Asian equities.
"There is a lot of pent-up demand and excessive savings" in these economies, Tam told the Reuters Global Markets Forum (GMF).
Even as over $51 billion have left global equity funds from January to April, China, Japan and Taiwan have seen inflows of $2.6 billion, $8.1 billion and $2.3 billion respectively, Refinitiv Lipper data shows.
Abigail Yoder, U.S. equity strategist at J.P. Morgan Private Bank, said she is positive on Chinese equities, and expects returns to more likely come from corporate earnings than valuations, as many companies have already defended their margins from a cost-cutting perspective.
"In the offshore market, the large-cap tech names … are far more into the cost-cutting cycle than, say, the large-cap tech U.S. names," Yoder said, adding that the reopening will further boost their revenue lines.
Goldman Sachs sees the north versus south disparity in Asia as a top investment theme in 2023.
"China's growth recovery and North Asia's earnings rebound in 2024 remain our key investment themes and overweight areas," it said in its second-quarter outlook.
North Asia will also benefit from the U.S. and EU economies holding up better than was feared 12 months ago, alongside the rise of artificial intelligence, said Herald van der Linde, head of equity research at HSBC.
"That is good news for exporters … many firms (in Korea and Taiwan) benefit from increased demand for chips and cloud services," he said.
(Join GMF, hosted on Refinitiv Messenger, here)
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