(Bloomberg) --

It feels like a long time since Asian stocks had a calm day like today: The region’s benchmark was up 0.2% after two days of intense rally, and the swings were the smallest in more than three weeks.

The reprieve provides a rare chance for investors to prepare for more volatile days ahead, as few believed the gains will stay. Among all these thinkings, sticking with strong balance sheets and preference over China stocks are some of the most frequently mentioned themes.

“When the world is on sale, you need to have a proper way to value businesses,” said David Wong, an investment strategist at AllianceBernstein in Hong Kong. Having strong enough financials to withstand a prolonged virus containment “is above all for portfolio managers whatever their investment styles are.”

Balance Sheet Safety

Some market participants still assume the coronavirus pandemic will only last another one or two months, he said. “But we want to be sure the companies we invest in have meaningful staying power than that.” Wong said he found bottom-up opportunities in health care, consumer and even industrials where some companies are safe to lockdowns and with potential business rebound once virus fades.

Cash reserve becomes a key focus in current circumstances. For both the MSCI Asia ex-Japan and MSCI Japan indexes, health-care, technology and consumer-discretionary firms have high cash rankings, according to a research note by Citigroup Inc.. Companies such as China’s Tencent Holdings Ltd., Alibaba Group Holding Ltd., as well as Japan’s Nintendo Co., Uniqlo owner Fast Retailing Co. ranked high on the firm’s ranking.

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China Love

Conviction buy on China remains strong, especially when the country has largely contained the coronavirus. Both Morgan Stanley and DBS Bank Ltd reitereated their preference over China in press briefings Thursday, as the country has largely contained the virus and exhibited relative strength during the global sell-off.

Morgan Stanley Picks China, Singapore Stocks as Virus Shelters

The MSCI China Index fell 15% since Jan. 20 when the coronavirus first spook the traders, much more resilient than Asia’s benchmark, which plunged 23% over the same period.

Demand is recovering in China, said Anthony Chan, chief investment strategist for Asia at Union Bancaire Privee. The firm prefers new economy shares in China’s domestic stock markets, and infrastructure, housing, industrials, materials and services stocks in H shares.


To strategists at Societe Generale SA, the key factor to watch out for at this moment is companies’ earnings trajectory, which is likely to determine the future course of the markets after valuation reached a level unseen since 2008 financial crisis.

“The main reason for the strong returns in the wake of the GFC was the sharp and near-V-shaped rebound in earnings,” according to a note written by strategists including Frank Benzimra.

Technology across Asia is an outlier where earnings revisions have been minimal, the team said, adding that their earnings momentum has been relatively strong compared with the rest of the market. SocGen reiterated their preference for the Asia tech and markets such as Taiwan, expecting them to be best positioned to ride out the current wave of earnings volatility.

Cash Still King

Still, some believes it’s still too early to think of positioning for gains. “Cash is still king,” said Manny Cruz, a strategist at Papa Securities. “We recommend to max up on cash to always have enough buffer when the market rallies.” While there has been unprecedented stimulus to address a potential recession, the world still hasn’t found a solution to the root of the problem, he added.

“Market is pricing in a crisis somewhere in between Global Financial Crisis and the Great Depression, ”said Luca Paolini, chief strategist at Pictet Asset Management.

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