INVESTORS should pare their Chinese equity holdings and put their money in Indonesia and Malaysia, according to analysts at Nomura Holdings.
They upgraded Malaysian and Indonesian stocks to overweight from neutral, partly on their view that the two markets will benefit more from cuts to US interest rates, according to a note by strategists including Chetan Seth. The analysts cut their recommendations on MSCI China to neutral from overweight.
Nomura’s call comes after rising interest in Indonesian and Malaysian stocks among foreign investors, with both markets poised to see a second straight month of inflows. China’s equity markets have faltered in recent months, pushing the MSCI benchmark down around 3.6 per cent since the end of May, as investors worry about the country’s shaky economy and the prolonged impact of a real estate slump.
“The time has also come to add decisively to Asean markets,” Seth and his colleagues wrote in a note sent on Monday (Aug 26), referring to South-east Asia. Investing in Indonesia is “possibly the best way” to bet on a revival in interest in emerging market stocks as the Federal Reserve starts to cut rates, they said.
Last week, Fed chair Jerome Powell gave investors a clear signal that a rate cut was coming in September.
Investors have reason to take Nomura’s pick seriously. The bank’s strategists upgraded Taiwanese equities in December, and the benchmark Taiex Index is up around 25 per cent this year. The wider MSCI Asia-Pacific Index is up about 9.8 per cent over the same period, while MSCI China has gained by 2.7 per cent.
Overseas funds bought US$874 million of Indonesian stocks on a net basis in August to Thursday, while putting about US$240 million in Malaysian shares, according to data compiled by Bloomberg.
Nomura kept its year-end target for the MSCI Asia ex-Japan Index at 707, implying little change from current levels. They said: “Any gains are likely capped amid US election-related uncertainties.”
Investors have had doubts about the investability of Chinese equities for years. Beijing has made efforts to boost the stock market, including encouraging state-linked companies to buy stocks, but the impact on sentiment has been limited. Tensions between China and the US have also cast a shadow over foreign investors’ interest in the market. BLOOMBERG
