A RM25t reason to buy into Asian equities

By BLOOMBERG

HONG KONG • If BlackRock Inc CEO Larry Fink is right and global stocks are poised for a “melt up” scenario, several of Asia’s markets may be candidates to help lead that charge.

Most participants are still underinvested in the markets globally, Fink said in an interview with CNBC on Tuesday after his company reported earnings. “We have a risk of a melt-up, not a meltdown,” he said. The head of the world’s largest investment firm, with US$6 trillion (RM24.96 trillion) of assets under management, said “huge pools of money” are sitting on the sidelines as investors haven’t rushed back into equities even as the stock market bounced back this year.

Fink’s comments come after an already potent rally across multiple benchmark stock indexes this year, with the S&P 500 on the cusp of a record high and the MSCI All-Country World Index about 5% away from its January 2018 peak. A dovish pivot from the US Federal Reserve and progress on the US-China trade deal have helped offset global economic growth concerns enough to lift stocks higher thus far this year.

That FOMO (fear of missing out) theory may have already played out in China and Hong Kong with the Shanghai Composite Index’s propulsive 31% surge this year after a massive plunge in 2018 and the Hang Seng Index’s entrance into a bull market this month.

The MSCI Asia Pacific Index’s 11% gain this year, however, still lags the global benchmark, mainly since Japan (now the third-largest stock market in Asia) has the biggest weighting on the gauge.

Tokyo stocks have struggled with a lack of investor interest as scepticism remains over the country’s long-term economic health, productivity and corporate earnings. Japan’s Topix Index is up 8.6% this year, lagging the Asia Pacific benchmark, while foreign investors have net sold more than US$17 billion of Japanese stocks as of April 10, according to EPFR data compiled by Jefferies.

Yet, an argument can be made for Japan, with Societe Generale SA positive on the country thanks to attractive valuations and strengthening corporate balance sheets.

Indonesia is also a second-half rebound candidate after Wednesday’s presidential election, with Citigroup Inc seeing untapped upside from domestic investors that have stayed on the sidelines so far this year, while waiting for a result. Foreign investors are already re-entering the market, picking up some US$1 billion in stocks this year already, the most in South-East Asia. The nation’s benchmark index rose 0.9% yesterday with Joko Widodo set to win a second term as president. — Bloomberg