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Asian stocks expected to do well for rest of year
Last Updated: 2014-07-11 14:22 | Xinhua
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While some investors worry that Asian bourses may face headwinds in the second half of this year, analysts are optimistic that improvement in earnings should propel Asian stocks to move higher by yearend.

With the U.S. Federal Reserve set to end its bond purchases in the autumn and then raise rates probably as early as sometime in the first half of next year, some nervous investors wonder how long the U.S.-led rallies in most Asian bourses can last. This concern is exacerbated by the unusually low volatility for equity prices lately, which suggests that most investors are excessively sanguine about the outlook.

However, HSBC Global Research said it finds little on the horizon that could trigger crash in regional markets. The low volatility, as the research house sees it, is typical of the mature phase of a bull market. It is when volatility rises that the investors need to worry, the research house said.

To support its optimistic view, HSBC cited more realistic consensus earnings for Asian companies, together with their stabilizing profit margins and return on equity following three years of decline as reasons. But it also pointed out that markets do not go up in a straight line, so a correction of some sort in the second half cannot be ruled out.

Among individual markets, China is the one on which HSBC remains overweight. China's equity market has started to recover as a slew of mini-stimulus measures are beginning to have a positive impact on the economy. HSBC expects an accommodative monetary policy to help revitalize private investment and build growth momentum. Valuations at current level look attractive and the market offers reasonably high yields.

As for the market that is least favored, HSBC cited Japan, saying that the Bank of Japan is unlikely to ease its monetary policy further this year, and finds Prime Minister Abe's proposals for structural reform unconvincing, although investors remain extremely positive on this market.

CIMB Research was also upbeat on performance of Asian stock markets in the second half of this year. It said Asia corporate debt level is generally not high and remain cushioned against rising interest rates.Indeed, they are de-leveraging, with their net debt expected to decline by more than 10 percent this year, and they are working to offset margin drags such as labor costs rise.

CIMB favors markets such as China and South Korea which will benefit from improving economic growth and offer good value at current price level. It also likes the economic restructuring story behind India, the Philippines and Vietnam.

CIMB is neutral on Singapore and Indonesia bourses. Singapore market outlook is clouded by the poor first-quarter earnings season and lack of price catalysts, while Indonesia bourse may remain turbulent until greater political clarity emerges after the recent presidential election.

Although Southeast Asian bourses have outperformed their North Asian peers in the first half, CIMB thinks a period of severe rotation play between both sides is unlikely. Instead, as China's growth has stabilized and should improve in the second half, pulling the regional equity market and regional returns higher, CIMB suggests investors should use any short-term price weakness as a buying opportunity.

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