Goldman Sachs is recommending short term bets on Asian stocks more exposed to economic recovery
Cyclical Asian stocks likely to fair better than Southeast Asian sectors which are more sensitive to U.S. Treasury yields
Just like how a broken clock tells the time correctly twice a day, investors who were looking for guidance from U.S. Treasury yields as to where the market was headed too next, may have missed the buying opportunities that presented themselves.
In a note to investors on Monday, investment bank Goldman Sachs (+3.67%) wrote that Asian growth can offset the risks surrounding rates, but prefers Asian cyclicals and short versus long duration ideas – translated that means look for stocks that are more exposed to the economy and take short term profit.
Sound advice given the current state of the markets.
With tech increasingly frothy and the potential downside from premium valuations high, Goldman Sachs is suggesting Asian cyclical stocks as providing a potential opportunity for returns.
Asian equities were not spared the buffeting from bond yields last week, but despite the 3.7% plunge of the MSCI Asia Pacific Index last Friday, it continues to outperform the S&P 500’s advance this year by 3%.
Given that Asia has managed the coronavirus pandemic relatively better than the U.S. and Europe, many analysts are betting that Asia’s economic revival will outdo the U.S. and Europe, positioning the region for more than 8% growth this year, according to International Monetary Fund projections.
Yields on government debt have risen on the risk of faster inflation as economies rebound.
And while higher borrowing costs can dull the appeal of stocks, some strategists point out that the U.S. is more exposed to yields than Asia, simply because America’s tech sector and growth shares constitute a greater proportion of its market and indices.
Asian chipmakers look particularly attractive, especially TSMC (+1.49%) and Samsung Electronics (+2.06%) – the recent shortage of chips for the automotive industry, backlogged order books and some exposure to growth sectors all bode well for these Asian giants.
Chinese firms especially HaiDiLao Hotpot (+0.07%), a chain of hotpot restaurants and Chinese fashion brand Meters / Bonwe (+3.70%) look particularly attractive as the Chinese economy opens up and returns to normalcy.