(Bloomberg) -- Asian equities are set to outperform their US peers this year as potential interest-rate cuts by the Federal Reserve weaken the dollar and investor sentiment toward China's inexpensive stocks improves.
That's the forecast from nine of the 11 Asia-based strategists and fund managers surveyed informally by Bloomberg News. Most of them are also increasing exposure to the region's stocks.
Invesco Asset Management is bullish on India and Japan, while Dalma Capital Management Ltd. prefers consumer discretionary and some financial stocks in the region, according to the results of the poll conducted this month. Kamet Capital Partners Pte. likes growth and technology shares.
“The upside is clear if Asian economies are able to enjoy cuts in interest rates and some normalization in China,” said Gary Dugan, chief investment officer at Dalma in Singapore. “We believe Asia offers value” and may start paying more attention to good news, he added.
The MSCI Asia Pacific Index lagged global counterparts in 2023, with its 8.8% gain dwarfed by the S&P 500 Index's 24% jump, largely due to the persistent slump in China's stocks. Respondents in the informal survey cited low Asia valuations and expectations of a rebound in China's market as key reasons to be optimistic. The Fed's much-anticipated easing is also seen giving Asian central banks more scope to reduce rates.
READ: Where Asia's Leading Stock Pickers Are Putting Money in 2024
The participants also acknowledged concerns that could affect their outlooks, including the Fed not being able to engineer a soft landing for the US economy, China's economic recovery faltering further or global geopolitical tensions rising. One thing they aren't so worried about: elections in Asia, which didn't feature among key risks for 10 out of 11 respondents.
READ: Asia Stocks in Better Shape Than US to Weather Election Turmoil
Stock performance though has been notoriously difficult to predict. Many strategists didn't see the 2023 US equity rally coming, and instead expected Asia to outperform last year on the back of low valuations and China's emergence from Covid restrictions. But at least from a valuation perspective, last year's underperformance has made Asian stocks even more appealing.
“Given the undershooting of APAC equity prices in 2022-2023, there is a considerable upside potential for APAC equities, especially in India and Japan,” said Tomo Kinoshita, global market strategist at Invesco based in Tokyo. His firm is increasing exposure to those countries, he said.
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