Top Asian stock markets shrug off Fed, China risks

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The resilience of the two markets stands out given that Asian stocks as a whole have lagged their US and European peers this year, and MSCI Inc.’s gauge of global stocks has also fallen by double digits.

A stronger dollar and rising global rates have hit tech-heavy markets like South Korea and Taiwan, while China has yet to find a bottom as its Covid Zero strategy, a property crisis and unpredictable regulations weigh on share prices.

India and Indonesia are the only two Asian markets with “China insulation” as they have posted a negative return correlation with the MSCI China Index over the past two years based on monthly returns, Goldman Sachs Group Inc. strategists wrote in a note released on August 3.

Other banks have cited Indonesia, with its large domestic market and energy-export strength, as having weathered US down cycles in the past. India’s advance has gathered momentum in recent weeks as foreign flows turned positive for the first time in months.

Several banks in India — a sector that makes up more than a fourth of the Nifty 50 gauge — beat profit estimates for the latest quarter on higher mortgage and loan demand. After dipping from their July highs, forward earnings estimates for the Nifty gauge have started climbing once again.

To be sure, with the Reserve Bank of India’s half-point rate increase on Friday, the central bank’s hawkish stance and inflationary pressures are headwinds.

In Indonesia, though, the economy appears to be in a rare sweet spot. Core inflation is below 3 per cent, giving the central bank room to hold rates for a little longer. And with last quarter’s growth beating estimates on reopening and booming exports, it’s got the highest net foreign inflows this year among developing Asian markets — $US3.8 billion ($AU5.5 billion). Forward earnings estimates for the equity benchmark have also stabilised.

“Better results, better flows in the case of India, a depreciating but not wildly volatile currency in Indonesia sets the stage for why these two economies are outperforming,” said Zhikai Chen, head of Asian and global emerging market equities at BNP Paribas Asset Management.

Bloomberg