Five things to look for in Asian stocks in hopes of a 2022 turnaround

Traders looking for a turnaround in Asian equities in 2022 will closely monitor China’s stimulus, the dollar’s direction, declining retail participation and the outlook for stock listings.

The case for an upturn should be supported by lower valuations, after the MSCI Asia Pacific Index underperformed its global counterpart by about 20 percentage points last year. It fell about 4% as China’s regulatory crackdown and slower growth weighed on the index, but investors hope Beijing’s return to growth-promoting policies and higher vaccination rates in the region will reverse the trend this year.

“Asian stocks may outperform their global competitors,” said David Chao, global market strategist for Asia-Pacific ex-Japan at Invesco.

Here are five areas to focus on for Asian investors as they navigate the new year:

public pit

Traders expect mainland inventories to recover this year as Beijing promises to support slowing economic growth, which has been swept up by a real estate slump and weak consumption. Several ministries have pledged support, including bigger cuts in fees and taxes, while the People’s Bank of China is already pumping more liquidity into the financial system. Further easing measures are also expected.

Political events such as the National People’s Congress in March will be closely watched for more clues about growth-promoting policies and the pursuit of “common prosperity”. The 20th Party Congress in the second half of 2022 is also important because it could confirm President Xi Jinping’s ruling for life.

And after a year of regulation that has battered technology, private tutoring and real estate stocks, BlackRock Inc. and HSBC Holdings Plc to those who say the worst of China’s regulatory crackdown may be over. “It seems important in such an important year to focus on stability and growth — not on restructuring and new regulations,” said Herald van der Linde, HSBC’s chief equity strategy for Asia-Pacific.

Border Patrol

China, the only country in the world to now have a Covid Zero policy, is likely to keep its borders closed ahead of the Winter Olympics in February, given the resurgence of domestic virus cases. But once international borders open, it could be a major catalyst for cyclical stocks from airlines to luxury stocks across the region, with Chinese tourists being the world’s biggest lenders.

“In terms of expectations, little has been priced in for China’s reopening,” said Zhikai Chen, head of Asian equities at BNP Paribas Asset Management.

On the other hand, more lockdowns could send shockwaves through Asian supply chains. Regional giants such as Samsung Electronics Co. and BYD Co. are already dealing with production problems in Xi’an.

dollar bill

With the Federal Reserve’s stimulus easing and interest rates expected to be hiked three times next year, the impact of a stronger dollar on Asian assets is a concern. Coupled with weaker Chinese growth, this could weigh on commodities and currencies in 2022, putting further pressure on emerging Asian economies at a time of domestic monetary policy tightening.

Southeast Asian stocks appear particularly vulnerable to capital outflows as ommicron proliferates, although a repeat of the 2013 taper tantrum is unlikely. Still, a weaker yen is good for Japan’s exporter-heavy stock market.

JPMorgan Asset Management strategist Tai Hui sees the Fed communicating adequately “to avoid sharp swings in bond yields, interest rates and exchange rates,” limiting the negative impact on Asian equities.

Retail Mania

After a two-year frenzy, private investor participation and new account opening in places like South Korea and India are showing signs of fatigue. That could reduce volatility and busy trades in the markets in 2022, allowing greater participation from fundamental foreign investors.

“Many foreign investors who are more fundamental would look to Korean stocks again,” said Chetan Seth, Asia Pacific equity strategist at Nomura Holdings Inc. at a briefing this month. “We expect two rate hikes from the central bank of Taiwan sometime in 2022, and that could be the catalyst that only slows retail participation.”

IPO pipeline

After a tumultuous year for Hong Kong listings, investors will be looking forward to a number of so-called homecoming IPOs, including Didi Global Inc. However, appetites for those quotes could cool as Chinese regulations tighten.

Meanwhile, the craze for blank check companies could finally make its way to Asia, as the first wave of special-purpose acquisition companies gets permission to list in Singapore and Hong Kong rolls out a rulebook.

–With help from Jeanny Yu, Youkyung Lee, Low De Wei and Ashutosh Joshi.