U.S. Markets open in 8 hrs 50 mins

Asia Stock Outperformance Is on Shaky Ground, Credit Suisse Says

Ishika Mookerjee

(Bloomberg) -- While Asia’s benchmark stock gauge beat the S&P 500 Index for the past two months, Credit Suisse Group AG doesn’t expect the outperformance to last.

Two main reasons for that: Firstly, the uncertainty surrounding the U.S.-China trade talks. And then, because a recovery in Asia’s technology hardware, which has helped lead the equity rally in the past two months, is “nascent at best, and the potential for reversal there still cannot be ruled out,” according to John Woods, Credit Suisse’s chief investment officer for Asia Pacific.

“From a risk-reward perspective, we do not prefer Asian equities to U.S. equities on a very short-term horizon,” Woods said at the end of last week, adding that the main risk is that U.S.-China trade negotiations get suddenly derailed. “We are inclined to remain cautious on this.”

Just a few days earlier -- in an Oct. 25 note -- he wrote that Asian equities may finally be poised to rebound after months of underperformance relative to global peers, supported by thawing U.S.-China trade tensions, loosening monetary policy globally and green shoots in Asia’s economic data.

While the American benchmark reached a fresh all-time high Friday, the MSCI Asia Pacific Index’s 6.9% rally of the past two months was almost double that of the S&P 500.

Now, Credit Suisse is expecting global industrial production to bottom out only toward the end of the year, with a modest rebound in the first half of 2020. On Thursday, official data showed that the outlook for China’s manufacturing sector dropped to the lowest level since February.

To contact the reporter on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Cecile Vannucci, Margo Towie

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.