Asian equities have rallied in recent months, but many markets still trade at favorable valuations. Patient investors should focus on high-quality names in the financial and information technology sectors.
We explore the recent devaluation of the renminbi, analyze market’s misreading of this development and explain why we remain cautious on Chinese equities in the near term but like the financial sector over the long haul.
An influx of liquidity from Chinese investors, coupled with the central bank’s recent rate cuts, has propelled China’s equity markets to big gains. We book another solid profit on one of our previous picks, highlight our favorite Chinese stocks and identify two other Asian equity markets that should ride this liquidity wave higher.
The long-term growth story for Asia’s emerging markets will gain support from reform efforts under way in China, India and Indonesia. Reasonable valuations in these equity markets create a decent entry point for patient investors who take the long view.
Concerns about slowing economic growth in China, coupled with supply overhangs in many key commodity markets, have weighed on share prices in the mining industry. But bargains abound for income-seeking investors with the patience to wait for a recovery.
Asia’s emerging markets remain some of the best long-term growth stories and should be at the top of your shopping list. Chinese equities still trade at relatively low valuations, giving savvy investors an opportunity to be selective and stock up on best-of-breed names.
Investors who think that developed markets can deliver strong returns if China’s economy collapses will be painfully off the mark. Fortunately, we don’t foresee a complete meltdown for China. The world’s quintessential emerging economy also includes pockets of opportunity for investors with a longer time horizon and the stomach for near-term volatility.
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