Nomura 'Overweight' On India, But Cautious And Selective On Asian Equities
The brokerage downgraded Taiwan to ‘underweight’, while being tactically ‘overweight’ on China and Korea.
Nomura has raised its exposure to South Asia by upgrading India to 'overweight'. It, however, turned cautious and selective on Asian equities, citing risks from elevated commodity prices and the U.S. Federal Reserve's higher-for-longer stance.
Stocks appear to have benefited from a soft landing, but this narrative could change, the brokerage said. "Elevated commodity prices, stickier-than-expected U.S. inflation, and the Federal Reserve's higher-for-longer stance, given the resilience of the U.S. economy, are risks for stocks in Q4 FY23."
Based on this overarching world view, we turn cautious and selective and raise exposure to the South by upgrading India to ‘overweight’ from a ‘neutral’ stance, Nomura said in a Sept. 26 note.
The brokerage downgraded Taiwan to 'underweight' while being tactically ‘overweight’ on China and Korea. It also upgraded Malaysia to a ‘neutral’ stance. “Style-wise, we favour a mix of value, strong balance sheets, and companies that can deliver super earnings growth, but avoid high-valuation and unprofitable areas of the market.”
Nomura is optimistic about Asia’s economic and earnings growth, while concerns about U.S. inflation and the growth outlook may dampen sentiment towards stocks. “It will be hard for Asian stocks to do well if the U.S. economy slows in 2024. Nonetheless, we think there is some support for Asian stocks from a strong earnings outlook and modest valuations.”
Nomura On India
Being a beneficiary of China plus one, very strong macros, a high earnings growth market, and positive domestic flows are Nomura's rationale behind upgrading India to ‘overweight’.
The brokerage sees the recent softness, which is a result of higher oil prices, as an opportunity to increase exposure. “While this weakness may persist in the near term, thus presenting even better timing, we think the window of opportunity might not be open for too long,” it said.
The expensive valuation in the Indian markets is likely to remain so in a scenario of continuity in policies and government, Nomura said. The cyclical slowdown from a high base is unlikely to deter investor optimism, it said.
The brokerage cited intense political activity into the May 2024 elections, China re-rotation, and sustained high oil prices as potential risks for the economy.
Early last month, Morgan Stanley had also upgraded India to 'overweight', citing a secular trend towards sustained superior dollar earnings per share growth, versus emerging markets over the cycle, with a young demographic profile supporting equity inflows.
