Investors turn picky in Asia after easy wins from China’s reopening

Sands China

09/02/2023 23:00

By Ankur Banerjee
       SINGAPORE, Feb 10 (Reuters) - As a swift and broad rally
in Asian stock markets after China's reopening from COVID curbs
peters out, investors are targeting beaten down stocks in
sectors including retail, hospitality and technology to lead a
narrower advance from here.
    The initial wave of optimism over the lifting of lockdowns
in the world's second-largest economy lifted a host of trade and
tourism stocks around the region, led predictably by the most
obvious beneficiaries - sectors such as Macau hotels and
Thailand tourism.
    But three months in, investors reckon it is time to get more
discerning. 
    "We believe the next phase of the market's recovery will be
focused on companies that can deliver resilient earnings
growth," said Robert Secker, portfolio specialist in the equity
division at T. Rowe Price. 
    Herald van der Linde, HSBC's head of equity strategy for
Asia Pacific, points out that travel and gaming stocks have
already benefited. 
    "I think in the remainder of 2023 it is all about how the
recovery in China filters through to consumer companies and
banks outside of China," he said.
    For investors looking for their next leg of growth, analysts
recommend sectors that stand to benefit from the pent-up demand
of Chinese consumers, such as hospitality firms, retailers, and
industries that struggled during the economic downturn,
including online recruiters and shopping mall operators.
    Investors are banking that sky-high Chinese household
savings, which jumped to 17.8 trillion yuan ($2.62 trillion)
last year, will be released and boost these sectors. 
    Man Wing Chung, lead manager for Value Partners' Asia
ex-Japan Fund is adding to technology hardware and semiconductor
 stocks in Taiwan, saying their "valuation has already priced in
a lot of the negative sentiment on the downward tech cycle."  
    While shares of Taiwanese chipmaker TSMC  2330.TW  have
risen 45% from their October lows, they still trade at 15.5
times forward earnings, below a 5-year average of 18.8 times. 
    Driven by expectations people in the world's most populous
country will rush to travel and socialise after three years of
the most stringent pandemic lockdowns, shares of Macau gaming
companies Sands China  1928.HK , Wynn Macau  1128.HK , MGM China
 2282.HK  have all more than doubled in the past three months.
    Singapore Airlines  SIAL.SI  is up 12%, while Trip.com Group
Ltd  9961.HK  has gained 68% in the same period.
    China's market has naturally benefited most, with the MSCI
China index  .dMICN00000PUS  up nearly 50% since start of
November, far outperforming the 13% rise in the MSCI Southeast
Asia index  .MISU00000PUS  and 26% gain in MSCI's broad
Asia-Pacific index  .MIAPJ0000PUS . 
    That has led investors to hunt for sectors and companies
with depressed valuations outside China.  
    Also, since China accounts for more than 20% of exports from
the Association of Southeast Asian Nations, a recovery in China
will lift up growth of the entire region, said Value Partners'
Chung, who is overweight on markets in the ASEAN bloc.
     Data from stock exchanges in Taiwan, India, the
Philippines, Vietnam, Thailand, Indonesia and South Korea shows
foreigners purchased $8.8 billion worth of stocks in January,
with Taiwan and South Korea witnessing their biggest monthly
purchases in at least two years.    
    Foreign investors had sold $57.2 billion in regional
equities last year. 
    GLOBAL PUSH OR CHINA PULL?
    After a torrid 2022, investors have been betting that a
swift recovery in China's economy will somewhat cushion the
impact of a global slowdown and possible recession.
    Value Partners' Chung said the concerns over global
recession have been largely priced into the market and the
benefits from China reopening have yet to be felt. 
    With global inflation showings signs of easing and investors
expecting major central banks to soon end their monetary
tightening, their attention has been switching to the
possibilities of a global recession. 
    "Everyone seems to 'know' we're going to have a recession,
and everyone seems to 'know' it will be mild," said Christy Tan,
investment strategist at Franklin Templeton Institute.
     "China and its reopening trade, on the other hand, are in
early stages and may be the additional tailwind for Asian
equities later this year."
($1 = 6.7850 Chinese yuan renminbi)
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Valuations of Philippine stocks compared with rest of Asia    https://tmsnrt.rs/3Yass3K
TSMC valuation    https://tmsnrt.rs/3YldM2c
MSCI China outperforms regional    https://tmsnrt.rs/3Ikave9
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 (Reporting by Ankur Banerjee in Singapore
Editing by Vidya Ranganathan and Lincoln Feast)
 ((ankur.banerjee@thomsonreuters.com;; Mobile - +65 8121 3925;
Twitter: @AnkurBanerjee17;))