Asian Stocks Seen Adding to 2023 Gains on China, Fed Pivot Hopes

Asian equities are likely to extend their gains as the year progresses, boosted by the region’s relatively better growth prospects and a broadening economic recovery in China.

That’s the view from majority of the 19 strategists and money managers surveyed by Bloomberg News. The MSCI Asia Pacific Index is expected to rise to 178.5 by Dec. 31, implying a 9.6% upside from current levels, according to an average of 10 responses in the poll conducted late last month. That’s slightly higher than the level the Asian stock benchmark traded at in March 2022, when the Federal Reserve delivered its first rate hike in three years.

Investor optimism is strongly tied to bets that the Fed will pause its rate-hiking cycle this year, helping soften the dollar and burnishing the appeal of emerging markets in Asia. Survey respondents said they are also counting on a strong rebound in China, the region’s growth engine. Most of them expect Chinese stocks to lead Asia gains because of their low correlation to any global downturn.

The MSCI gauge “will rally 10%-15% from here by the end of this year due to the region’s growth differential and prospects of Fed easing,” Wong Kok Hoong, the head of equity sales trading at Maybank Securities Pte., said in a virtual interview. Chinese equities will helm the advance as the nation “has become more pro-growth,” he added.

Valuations are another reason investors are optimistic about Asia. The MSCI benchmark rose 4.1% in the three months to March 31, marking its second quarterly gain after five consecutive declines. Still, the gauge is trading 13.2 times its one-year forward earnings versus a five-year average of 14.2.

The S&P 500 Index is trading at a multiple of 18.3 times versus a five-year average of 18.7. It climbed 7% last quarter.

Southeast Asian equities also emerged as a favorite among some market participants on expectations that domestic demand in the region will remain strong, monetary policy tightening will pause and inbound tourism will improve.