The MSCI Asia Ex Japan Index has enjoyed its best start since 2012, up 10.2 percent this year. China’s stock market has emerged as one of the best performers, with MSCI China Index gaining 11.6 percent. Although pullbacks are to be expected, investors are in for a good year and should buy the dips.
China finished celebrating the year of the Rooster. The last time China celebrated the year of the Rooster was 2005, when the MSCI Asia Ex Japan Index appreciated by 23 percent. India, South Korea and China were the top performers, and India (A True Friend) and China will do so again.
China is the stock market investors love to hate. The conversations are always about what could go wrong in China and rarely what could, or will, go right. And yet China’s equities have outperformed emerging markets during the past one-, three- and five-year periods. That five-year stretch beat other markets by double digits.
Most investors question the sustainability of the rally in Asia. Many of these skeptics are not invested in the region, at least not substantially. The ones who are mainly own names in defensive sectors, such as consumer staples, health care and consumer discretionary.
For the past year, we’ve made the case that cyclicals and growth names should be the focus when investing in Asia, in general, and China, in particular. The rational has been a simple one: Asia and China were starting to recover, and growth and cyclicality offered the best opportunity, especially when valuations were relatively low.