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BNP Paribas bullish on Asian equities

BNP Paribas bullish on Asian equities

The acceleration of the earnings cycle over the next few years can support a continued strong performance in Asian equities, according to BNP Paribas Asset Management’s Asian equities head, who said consequently, any pullback in the market during the cycle represents a buying opportunity for long-term investors.

Asian equities performed well during the nine months until 30 September, returning more than 30% in US dollar terms. However, after such a strong performance, it is natural to assume some market moderation towards the end of the year.

‘After this year’s rebound in Asian economic activities, we can expect momentum to taper off towards the fourth quarter until early 2018, given the weaker commodity prices and the base effect of strong growth.

‘The cycle of earnings upgrades in the two sectors - information technology and materials that saw most of the increased forecasts appears to be softening,’ Arthur Kwong told Citywire Asia.

The first nine months’ rally was the result of a combined earnings upgrades, increases in price-to-earnings multiples and stronger regional currencies.

Despite the pullback in Asian equities, Kwong remains bullish for the market in the long run for a number of key reasons, including earnings recovery, improving economic activity and stability in China. He does not expect Asia to face any major crises any time soon.

‘Firstly, Asia is currently in the first year of an earnings recovery after six years of curbed profit growth. After strong earnings growth this year, we believe that it may soften in 2018, but remaining at a reasonable and encouraging level,’ he said

‘Secondly, while GDP growth is expected to remain relatively flat year-on-year, Asia continues to deliver higher growth relative to other regions.’

Kwong continues to see opportunities in India and the Association of Southeast Asian Nations countries over the longer term, given the working-population growth, the lower penetration of products and rising disposable income.

‘Strong trade tailwinds and the renewed product launch cycle in the tech sector should continue to benefit the North Asian export markets of South Korea and Taiwan,’ he added.

Moreover, increased rigour in risk mitigation ahead of top-leadership reshuffles next week are crucial for Beijing to preserve economic, social and political stability. Stability in China should allow for a stable year for Asian equity markets.

Other key factors supporting Asian equities are global investors remaining underexposure to Asia ex-Japan equities, Asian equities’ undemanding valuations and its resilience against external shocks.

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