(Bloomberg) -- Asian equities rebounded from Monday’s steep selloffs worldwide as bargain hunters returned, igniting questions about whether the worst is over or if it’s a dead cat bounce.
Emerging themes in market participants’ radar — in the wake of a repricing of US recession odds and the unwinding of yen carry trade — include dip-buying in selective stocks, rotation to China, loading up on defensive equities, and the vulnerability of AI shares.
Here’s a selection of comments on the key themes in focus.
Buy the Dip
The MSCI Asia Pacific Index jumped as much as 4.2%, heading for its best day since November 2022, following a rout of more than 6% on Monday. Japan, the epicenter of Monday’s selloff, led the rebound as the yen eased following steep gains against the dollar.
“The pull-back has created some good opportunities, particularly in equities,” Guy Stear, head of developed markets strategy at Amundi Investment Institute, wrote in a note. Japan and some European markets look attractive as they have given up gains for the year even as earnings have so far met or exceeded expectations, he added.
“The current market selloffs are presenting more opportunities,” said Sundeep Bihani, a fund manager for Asian equities at Eastspring Investments. “As the Fed starts its rate cutting cycle, we are likely to see the US dollar weaken, and this is usually favorable for Asian and EM assets.”
China Becoming Appealing
“The violent reaction increases the probability of a rotation” to Chinese equities from Japan, said Frank Benzimra, a strategist at Societe Generale SA. Chinese equities have low valuations and tend to be relatively more insulated during global stress, he added.
The “irrational” selloff in Asia has made underowned China an opportunity, said William Yuen, investment director at Invesco Hong Kong Ltd. “Over the last two to three years, China’s positioning for fund managers has probably been one of the lowest in history.”
“In the context of multiple global macro risks emerging recently, we see Mainland China as a relative defensive, especially since many of the country-specific risks appear to have been priced in already,” said Sunil Tirumalai, a strategist at UBS Group AG.
Turning Defensive
“We have cut equity risk overall, seeking a net asset value-stabilizing balance of risk and safety assets until the soft vs. hard landing verdict is in,” said Michael Kelly, global head of multi-asset at PineBridge Investments. “If we morph into the ‘R’ word, there’s more to go,” he added, referring to a potential recession in the US.
“I would expect markets to remain volatile and hence would stick to looking for late-cycle defensive exposure through quality or dividend yielding names,” said Rupal Agarwal, Asia quantitative strategist at Sanford C. Bernstein.
“The current volatility should eventually create opportunities to ‘buy the dip’,” Goldman Sacha Group Inc. strategists including Christian Mueller-Glissmann, wrote in a note. “Over the remainder of the summer, we continue to prefer defensive exposures within assets and look for selective safe havens in addition to bonds to buffer equity volatility in multi-asset portfolios.”
Tech Is Still Vulnerable
“There will be some bloodletting since Asian tech has been running at price ratio premiums for quite a while now,” said Sandeep Rao, a researcher at Leverage Shares. Tech funds with a high concentration of Taiwanese, Korean and Chinese/Hong Kong tech stocks are particularly vulnerable, he said.
“We’re at risk of seeing, globally, a pause in the AI-related equity boom,” Benzimra said.
--With assistance from John Cheng and Sangmi Cha.
©2024 Bloomberg L.P.
