Stocks in the Asia-Pacific region will likely see a relief rally that could even overshoot the fundamentally derived fair-value-index targets, according to Nomura Research.
The emerging Asian stocks would welcome an environment of a softer dollar and moderating US bond yields as concerns of a higher-for-longer should ease in the near term, according to Chetan Seth of Nomura.
The US April consumer prices increased 0.3% month-on-month versus 0.4% increase in March. The CPI print rose 3.4% year-on-year in line with estimates. The US also reported retail sales data that came in softer vs expectations.
Inflation report comes out on the heels of the softer US payrolls report earlier in May. This "should keep market hopes alive that the next move from the Fed is still a rate cut (and not a hike)", Seth said in a note.
The current narrative moving toward no-landing is almost certain to get tested yet again the moment there is two–three softer inflation or payrolls reports from the US, the note said. For investors, "the current pullback is likely to be an opportunity for long-term investors to increase allocation in AeJ (Asia-Ex-Japan) stocks".
Near term, this data release should boost the prospects of tech/AI/chip-related names in South Korea, Asean stocks that suffered from stronger dollar earlier, he said.
Asian stocks rallied in early trade on Thursday, taking cues from its Wall Street peers on the latest US inflation print.
The Nikkei 225 was trading 247.04 points or 0.64% higher at 38,632.77, and the S&P ASX 200 was 98.90 points or 1.28% up at 7,852.60 as of 06:41 a.m. The Kospi index was 40.18 points or 1.47% up at 2,770.52.
Multi-Month View
Nomura has been modestly constructive on AeJ stocks since the end of last year. Asian stocks could even intermittently overshoot fundamentals amid softer US data, and increasing expectations that China may finally be looking to address the challenges in its property sector, it said. "With limited upside potential at the index level, we continue to emphasize a focus on stock selection."
A 'no-landing' scenario in the US, disappointments in AI monetisation/delivery, Asian stocks start pricing in uncertainty from the US elections, and new emerging risk of fears of US recession could be the main risks to Nomura's views.
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