Asia (China, South Korea, Taiwan and India), in contrast, are net oil importers and benefit from falling energy prices. Furthermore, many of their largest companies export to the US and are thus helped by a strong dollar, which effectively makes their products cheaper for American buyers. Thus, Asia ex-Japan is the only EM region with earnings and stocks near record highs, whereas Latin America and Eastern Europe remain well below peak levels. Valuations in Asia ex-Japan remain near average levels, while we do not expect major currency depreciation among Asian nations, we think they are feeling pressure to weaken their exchange rates. Therefore, while Asia ex-Japan is our favourite among EM, e prefer DM overall (especially on a currency-hedged basis).
Here is The Weekly View.
Well, there is a lot of concern about currencies but is it justified? People like the US market, backed by the strong USD, but the S&P 500 is only up +1.97% so far this year. In contrast, the Euro has been the weakest currency but the Euro Stoxx 50 is up +4.55% in USD since QE was announced by the ECB. It is by no means an exception because the French CAC is +5.64%, German DAX +9.03%, Italian MIB +6.43%, Holland’s AEX +4.92% and Sweden’s OMX +5.53%, all in USD terms so far this year. In the Asia-Pacific region, Japan’s Nikkei 225 is +11.63%, Australia’s ASX 200 + 4.14%, China’s Shanghai Comp +10.16%, Taiwan’s TAIEX +4.83%, South Korea’s KOSPI +4.94% and India’s SENSEX +5.65%, again all in USD this year.
Yes, these numbers have swung around quite a bit in somewhat volatile conditions, but I will continue to point out that the strong Dollar, which appears to have reached at least a near-term peak in the last week, has been a headwind for US equities. In contrast, QE, which seems to worry so many commentators, has been a strong tailwind for Europe recently and Japan for somewhat longer. That said, short-term overbought conditions are evident. China’s monetary policy is also more stimulative.
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