Silver Linings Emerge for Asian Stocks After Rocky First Quarter

(Bloomberg) -- After two years of relative calm in Asian shares, volatility has returned with a wave of geopolitical risk and market uncertainty.

The first quarter of 2018 brought a trade war between the U.S. and China and President Donald Trump's protectionist swagger. It saw a scandal in Japan, a new Federal Reserve chief and Treasury yields hitting the highest level since January 2014, not to mention key executives at the region's largest companies came under fire.

With headlines going off like bombs, the MSCI Asia Pacific Index fell for the first time in five quarters and markets across the region were mixed. Japan's Topix gauge reached a 26-year high in January and quickly retreated in the next two months, while Vietnam's stock index triumphed with a 19 percent advance.

Tech stocks lost their top standing in the region to the healthcare sector after two big routs, as companies like Medy-Tox Inc. surged almost 50 percent.

The MSCI Asia Pacific Index rose 0.2 percent Monday, the first trading day of the second quarter.

What's to expect going forward? Here are some charts to keep in mind:

Regardless of share price performance, Asian companies are still reporting solid earnings growth. More than half of stocks on the MSCI Asia Pacific Index beat analysts' estimates in the quarterly reporting season just passed.

“We are not in a bear market,” Hou Wey Fook, chief investment officer at DBS Group Holdings Ltd. said in Singapore.

The markets are likely to see a 10 to 20 percent correction over the next few months but the volatility will taper off as fundamentals in the global economy are still strong, inflation is likely to remain tame and corporate earnings are upbeat, he said, adding that he recommends buying dividend stocks for more resilience in the next quarter.

Hong Kong's Hang Seng Index retreated in the first three months, ending its longest quarterly winning streak since 2006.

While the gauge breached its 100-day moving average three times in the first quarter, its long-term trend looks intact as analysts are projecting gains from improving earnings and a stable economy that will counter the risk of a trade war. The stock benchmark could reach 33,000 points by the end of the second quarter, according to six analysts surveyed by Bloomberg.

Vietnam's equity outperformance has been fueled by an accelerating economy and strong foreign inflows.

The Ho Chi Minh Stock Index rose to a 10-year high last month and shows no signs of stopping. Bloomberg's Fear/Greed indicator, which measures selling strength to buying strength has remained above zero for about five consecutive weeks, after flashing a bearish signal amid a rout in February.

--With assistance from Mark Cranfield and Choong En Han

To contact the reporter on this story: Livia Yap in Singapore at lyap14@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Chris Nagi

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