Asian markets led by China to benefit from global capital inflows in 2020, as US dollar weakens, analysts say
Emerging markets in Asia, including China, could benefit from an influx of global capital in 2020, with the region offering upbeat economic growth prospects amid the possibility the US dollar could weaken after a decade-long extended rally, strategists said.
The dollar’s strengthening cycle against emerging market currencies will peak next year, as the rest of the world catches up with the United States’ bright economic growth this year, Deutsche Bank said.
“That will help bring more money into local markets, local currency funds in emerging markets and Asia, which I think will be very critical next year,” Sameer Goel, head of Asia macro strategy at the German bank, said in an interview.
“The focus will move away from the outperformance of the US cycle versus the rest of the world – both the business cycle and policy cycle – towards one where there is a greater amount of convergence, which allows the rest of the world to start to outperform the dollar.”
Asian currencies such as the Korean won, Taiwanese dollar and Malaysian ringgit are likely to strengthen the most against the US dollar, Goel said.
US equities led the global markets this year. The MSCI USA Index has climbed 28 per cent so far this year, against a 24 per cent rise in the MSCI World Index and 19 per cent gains by the MSCI China Index.
Meanwhile, the US dollar index has inched up 1.2 per cent this year, but it rose 25 per cent over the past decade.
Asian markets offer appealing valuations, with most economies having solid growth momentum and lesser inflationary pressure than the global average, Manulife Investment Management said.
“We do see Asia being relatively more attractive among emerging markets in terms of valuations,” said Bruno Lee, head of retail wealth distribution for Asia at the global asset manager.
Some international funds could flow into Asian fixed-income and equity markets next year, particularly in China, as the country’s tensions with the US ease following the agreement of a “phase one” trade deal last week, Lee said.
Manulife expects outstanding opportunities in China’s consumption-related stocks, especially auto part makers, biotechnology companies, data centre producers and electronics suppliers who will benefit from the development of fifth-generation (5G) mobile networks.
HSBC Private Banking was also bullish on Asia’s consumption growth. “Robust wealth accumulation, the rise of China’s ‘empty nesters’, and the young, fast-growing and urbanising Asean population are among the key drivers for robust Asian consumption growth,” Patrick Ho, chief market strategist for North Asia at the private banking unit of Europe’s biggest bank, said.
But HSBC Private Banking forecast a strong US dollar, as it expects the US Federal Reserve to be less aggressive in lowering interest rates than other regions.
“As we expect the Federal Reserve to stay on hold throughout 2020 and 2021, we forecast the US dollar to remain strong in the coming year as market attention will turn to the likely rate cuts outside the US,” said Fan Cheuk-wan, chief market strategist for Asia at HSBC Private Banking.