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US equity sell-off: what it means for Asia

The Nasdaq and the S&P 500 dropped 4% and 3.3%, respectively, on Wednesday. Here’s what investors have to say

Marcella Chow, J.P. Morgan Asset Management

Global Market Strategist

There is one key difference compared to February: assets outside of the US have clearly been underperforming but compared to February, Asia and emerging markets (EM) are no longer as overbought.

Along with the corrections in the past few months, the vast majority of the downward trajectory has already been taken. Differentiation remains key when investing in Asia and EM, as international selling will likely pick up in the next few days within countries with macro fragilities.

One key to watch out for is the latest round of US earnings season and how corporations are managing earnings expectations. Earnings growth for 2018 should remain strong, thereby providing a near-term safety net for the stock market.

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Marcella Chow, J.P. Morgan Asset Management

Global Market Strategist

There is one key difference compared to February: assets outside of the US have clearly been underperforming but compared to February, Asia and emerging markets (EM) are no longer as overbought.

Along with the corrections in the past few months, the vast majority of the downward trajectory has already been taken. Differentiation remains key when investing in Asia and EM, as international selling will likely pick up in the next few days within countries with macro fragilities.

One key to watch out for is the latest round of US earnings season and how corporations are managing earnings expectations. Earnings growth for 2018 should remain strong, thereby providing a near-term safety net for the stock market.

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Kristina Hooper, Invesco

Chief Global Market Strategist

I believe there will be some contagion in the near term — Asian stocks are already down. I expect a significant sell-off that extends internationally, although I expect the US will feel the most pain.

Earnings season is likely to be strong, which would provide some support for stocks and may help them rebound relatively quickly.

Unless an investor has a short time horizon, I believe it is important to maintain exposure to a broadly diversified investment portfolio that includes risk assets. In addition, tactical investors can take advantage of buying opportunities created by the sell-off.

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Steven Friedman, BNP Paribas Asset Management 

Senior economist 

The rise in Treasury yields has been the primary catalyst for the sell-off in equities. It is also possible that equity investors are growing concerned that the Federal Reserve’s projected rate path will choke off the expansion.

It is not surprising that Asian equity markets are following the US lower. The impact of the US-China trade dispute is not even yet fully evident in the data in these two economies as well as other Asian economies that are integrated into global supply chains.

Should a slowing in regional growth become more evident in the data, it could pose a downside risk to equity performance. 

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Medha Samant, Fidelity International

Investment director for Asian equities

Likely that this negative sentiment could roll over to the Asian markets in the short term - slowing global growth, strong dollar and protectionism are already weighing on sentiment especially for those emerging markets and currencies with weak macro and vulnerable balance sheets.

However, the valuation story for Asia remains compelling. Asian valuations are at a discount to those in the developed world.

Importantly, the long-term fundamental story for Asia led by rising domestic consumption remains unchanged.

Our positioning reflects a bias towards this space and we continue to see many opportunities in China and selectively in Asean - quality companies that are exposed to the domestic economy and consumption, insurance and healthcare.

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Dylan Cheang, DBS Private Bank

Strategist

The latest selldown is no different from the one in 1Q18– where investors over-reacted to the Fed’s tightening concerns, before calm and rationality took over.

Beyond the current bout of volatility, we expect fundamentals, especially macro and corporate earnings growth, to return and stabilise the markets, in particular, the US market.

The sharp selloff in US risk assets would likely weigh on yields in the
coming months. DBS forecasts the UST 10-year yield to stay near the level of 3.2% for 4Q18, and we do not anticipate drastic swings in coming weeks.

We have highlighted our preference for China financials and technology stocks. The latest selldown in China equities presents attractive opportunities for investors to buy into these investment themes.

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Kelvin Tay, UBS Global Wealth Management

Regional CIO

With Q3 earnings season about to start, we expect earnings per share growth of about 23-24%.

Granted, the focus will be company guidance for future earnings, but for most sectors the tariffs announced thus far are not that impactful and underlying trends in even affected sectors - materials, industrials, tech, and consumer discretionary - still look fine.

In addition, the strong growth momentum should enable the economy to readily absorb higher rates - even as the Fed continues to normalize policy in a measured manner.

We continue to recommend an overweight position to risk assets in our tactical asset allocation. This includes an overweight in global equities and emerging market hard currency sovereign bonds.

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