With the Federal Reserve releasing a strong signal of interest rate cuts, the world's leading India and Japan have become the most favored Asian markets for international investors this year, with an increase of about 17% and 30% respectively during the year. Despite a lackluster performance for the year, China**'s cheap valuations and stimulus expectations are starting to attract investors' attention.
Morgan Stanley's Asia** outlook report recently mentioned that 2023 is a critical year for Asia's three largest ** markets - Japan has clearly shaken off three decades of economic stagnation, while accelerating corporate reform [the Tokyo Stock Exchange requires companies with price-to-book (PB) ratios of less than 1x to disclose and implement improvement measures];India has achieved strong relative earnings and macro fundamentals have withstood a sharp tightening of US financial conditions, garnering large international inflowsIn the context of global de-risking, China has entered a "3D journey" (debt, demographics, and inflation downwards), which has led to lower valuations.
What will happen in 2024?Andrew McCaffery, global chief investment officer of Fidelity International, said in an exclusive interview with CBN reporters recently that the story of India is happening for real, but valuations are no longer cheap, and the market has priced in many positive factorsHe is more bullish on Japan**, and the Topix trading specifically mentioned the focus on the measures for broken stocks (price-to-book ratio has been less than 1x for a long time), and strongly urged these broken shares to disclose relevant improvement policies and specific measures, which means that listed companies must focus on shareholder value, while international investors are still underweight Japan**, so a lot of money may still be on the way.
He said that despite the slowdown in China's economic growth, the valuation of some Chinese companies has been quite cheap, and the future of the first company still needs catalysts, and China needs to focus on the demand side, the key is still to boost consumer confidence and stimulate the return of "animal spirits".
The valuation of India, the darling of the world, is not low.
As investors look to diversify their money away from U.S. stocks, international investors have flocked to India** in the past two years to bet on growth in the world's most populous country. At the same time, India is also one of the beneficiaries of the diversification of the "China+1" ** chain, and many international companies have set up factories in India.
According to the World Federation of Exchanges, the total market capitalization of India's listed domestic companies stood at 3$7 trillion, compared to $3 for Hong Kong9 trillion dollars.
Indian share prices were sharply** in November, driven by strong earnings and optimistic growth expectations, putting the Exchange Group on track to become the world's seventh-largest exchange after NYSE, Shanghai, Euronext, Japan and Shenzhen. Over the past month, India's NIFTY 50 Index has fallen by 81% and hit an all-time high in the fourth quarter.
Looking around the world, not many countries can reasonably be confident that their GDP will grow at a sustainable rate of at least 6% over the next 15 to 20 years.
Morgan Stanley said China's weight in the MSCI AC Asia-Pacific index has fallen by 7 percentage points, from 26% to 19%, since January 2021. During the same period, India saw the largest increase in weight, rising by 4 percentage points to 10 per cent;Australia, on the other hand, increased by 2 percentage points to 11 per centJapan increased by 1 percentage point to 33 per cent of the regional index.
According to the agency, India has long shown great potential and is only now beginning to unleash it gradually. "Multinational companies are looking to diversify some of the capabilities of the ** chain to India. And from the perspective of global** or regional** investors, it is important that this is now translating into earnings and market performance, while also helping the local currency to enter the appreciation channel. Strong local currency appreciation, improving net profit margins, and a more stable inflation outlook are the main drivers. ”
However, there are still many investment institutions with a cautious wait-and-see attitude towards India, at least in the short term, international investment banks also believe that the three main headwinds are higher valuations, ** correction and imminent ** risks.
On the ** side, EPFR data shows that for the first time since 2008, foreign investors' allocations to India have returned to the neutral standard (previously overweight). Election uncertainty is likely to add volatility over the next six months. The above-mentioned investment bank said.
Coincidentally, McCaffrey told reporters: "India is a very attractive structural opportunity, but the market valuation is quite high at the moment, and for investors, they need to be able to take a longer term view and invest horizon, and also need to endure some short-term potential volatility because the market is not so cheap anymore." ”
In fact, there is no precedent for India's rise. Historically, emerging countries have risen through manufacturing, and China is undoubtedly a manufacturing powerhouse, but India's rise so far has been through the export of services, such as the export of low-value-added services such as ** service centers for Western English-speaking countries.
A number of international institutional investors interviewed by reporters have previously said that without the support of labor-intensive large-scale manufacturing, India's urbanization process is much slower, even slower than that of newly industrialized countries such as Vietnam and Bangladesh, which has led to few employment opportunities in recent years, which may lead to the "demographic dividend" becoming a "population burden". Therefore, India's current rise must be a rapid transformation to manufacturing, which is why Modi has pushed the "Production Linked Incentive Scheme" (PLI) in the past two years to promote "Make in India".
Japan** will continue to receive additional global allocation.
Compared with India, Japan** seems to be a market that makes global investors more confident, and capital is undoubtedly the key to driving the market, almost all mainstream international investment institutions have previously underweighted Japan, due to negative interest rates, low inflation, and low growth rate, but Japan**'s popularity will soar in an "instant" in 2023.
McCaffrey mentioned that while Japan** is up nearly 30% this year, Japan** valuations are actually cheaper. The market benefited from a huge catalyst, with the Topix trading specifically mentioning a focus on net-breaking stocks, which pushed companies to improve their balance sheets, make better use of cash, and increase returns and dividends.
For now, international investors are still underweight Japan**, so they need to rebalance their portfolios (funds are likely to continue to flow into Japan**) Although **sharply** this year, long-term funds are not too worried about a few percentage points of change, and the recovery of the Japanese economy is even more critical. He said.
Earlier, Rob Subbaraman, head of global macro research at Nomura, said in an interview with the first financial reporter that he is still optimistic about the prospects of the Japanese economy and **. "Deflation has plagued Japan for 20 years, but it has finally started to pick up in the past year, and wages have also climbed after the 'spring fight'. At the same time, due to the labor shortage in Japan, women are encouraged to participate more in the labor market, especially in the prime of life, which is a positive change. In his view, when wages climb and there is no surplus labor in the market, it means that employees have more bargaining power, can increase their mobility and seek higher wages, which leads to more efficient labor distribution and higher productivity.
The point is also that Japanese households put half of their deposits in banks, but the deposit rate is still negative, and the current situation will make them start to think about "moving their deposits", such as investing**, which will make ** have better upward momentum.
Starting in 1990, the Nikkei went down from 40,000 points until it bottomed out around 7,000 points in 2009. This is due to the fact that Japan's GDP growth has been quite slow during these 30 years and has experienced a period of severe deflation.
But since 2012, Japan's nominal GDP has returned to growth. Over the past decade to 2021, Japan** has seen cumulative returns of 174%, outpacing the S&P 500 and others, while Japanese deposit rates have been close to zero during that time. This has a lot to do with "** economics". In 2022, the big problem of boosting inflation was realized, and although this growth was temporarily interrupted by the new crown epidemic, the IMF latest forecast that Japan's GDP will reach its target of 600 trillion yen in the next few years.
However, McCaffrey also told reporters that the only headwind facing Japan in 2024 may be the yen. "Japan** tends to climb at a time when the yen is weak. As the Fed signaled a rate cut, the JPY sharply** (USD, the JPY retreated from above 150 to around 143). If the yen continues to appreciate in 2024, it may be difficult to continue to climb substantially, although Japan remains a long-term structural opportunity. ”
China** is still waiting for the catalyst to ignite.
Bullishness on Japan and India** has become the consensus of mainstream institutions for 2024, but another consensus is that China** valuations are already low and there are opportunities worth seizing.
Johanna Chief Investment Officer, Schroders InvestmentsJohanna Kyrklund previously said in an interview with Yicai that although China's ** performance in 2023 is average, "don't ignore China, don't forget that at this time last year, global investors rushed to increase China** and lay out 'restart trading'." In her view, market valuations are already pricing in a slowing economy, and low valuations can already allow stock pickers to see interesting investment opportunities. Given that China's CPI is negative, how to boost consumer confidence in the future will be the most critical.
Coincidentally, McCaffrey believes that with the easing of Sino-US relations since the APEC summit, the market is becoming more constructive, "Now many of the best companies in the industry have seen a significant discount, and the market is almost pricing in the future growth of these companies, which is an overly pessimistic mood." ”
However, cheap valuations are one thing, and the market needs a catalyst to make people realize that there are no more sellers. He said that the risk that needs to be eliminated now is that several key ** boots will hit the ground in 2024;In addition, China's real estate has been suppressed and has entered the stage of deleveraging, and the implementation of future stimulus policies is also crucial. At present, we need to focus on the demand side.
Gao Ting, general manager of the research department of Nomura Oriental International, told reporters a few days ago that the current A** field has been more fully priced in the downward pressure on fundamentals, and the further introduction of the future stable growth policy is expected to bring more upside opportunities, and the current net profit growth rate of the CSI 300 index in 2024 and 2025 is expected to be 58% and 83%。On the main line of investment, it is recommended to focus on the over-falling opportunities from the dual circulation strategy and the A** market after three consecutive years of adjustment.
Gao Ting believes that there are three main lines of medium and long-term investment worthy of attention: first, consumption upgrading under the transformation of new domestic demand, that is, modern urban consumption, mass consumption quality upgrading and demographic structure consumption upgrading;The second is the direction of external circulation value-added upgrading represented by consumption output, entertainment output and production capacity output;The third is the repair opportunity in the over-falling sector. In addition, if overseas interest rates continue to fall, the food and beverage, electric and pharmaceutical industries, which have long been favored by foreign investors, are expected to benefit from the return of active funds.
Editor-in-charge: Shi Jian |Review: Li Zhen |Supervisor: Wan Junwei.
*: CBN).