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After a rally during the early months of the pandemic, Asian equities have erased the majority of the gains in 2022. With a looming US recession and global economic slowdown, investors in Asia are running for cover. While financial markets showed bearish moves during the first half of 2022, Nomura sees Asian markets giving mid-teen returns by the end of 2022.
Asian equities have come under pressure due to rising inflation, monetary policy tightening by the US, China’s zero-Covid policy and the Russian invasion of Ukraine. While these issues will persist in the near term, any easing will likely provide markets with some stimulus.
Additionally, equity valuations have taken a hit and companies may see earnings downgrades due to the above-stated risks. The measure of these downgrades will depend on whether China sees fewer Covid-19 cases and if the US has a hard or soft landing after 2022.
While risks persist, Nomura sees several buffers that can keep Asian markets buoyant. Valuations in Asia are modest in absolute and relative terms, earnings will grow in line with nominal GDP growth rates, and the balance sheets of Asian companies are generally healthy.
Country-wise, Nomura says China is the cheapest market in the region and global investors are underestimating the scope of recovery in the second half. In Japan, recurring profits of companies are expected to rise by double digits.
Nomura is optimistic about South Korea’s semiconductors sector, renewable energy and to some extent automobiles. The financial services group sees a 16-18x correction in the Indian market and prefers stocks with high earnings visibility and valuation comfort. Sector-wise, Nomura sees India’s financial, infrastructure and pharmaceutical sectors performing well in the coming days.
