FRIDAY, March 29, 2024
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US capital seen Asia-bound in H2

US capital seen Asia-bound in H2

There’ll be a capital “rotation” in the second half of 2019, with money flowing from US markets to Asia although the world’s largest economy has seen a much-coveted rally in the first six months of this year, according to Japan’s financial services provider Nomura.

“The evaluations in the Asia-Pacific are cheaper, and earnings growth in the region is better. So, from a very mechanical perspective, investors should be reallocating resources toward Asia,” said Jim McCafferty — joint head of Asia-Pacific equity research at Nomura in Hong Kong — adding that Asia's dividend growth is also among the best globally.

With the US economy seemingly fundamentally rosy as nearly 80 percent of US companies have reported financial results that beat earnings expectations, he noted that quite a number of them have lived up to expectations with strong buyback moves.

As for tech giant Apple and financial services provider Wells Fargo, McCafferty said their share prices are being “kept alive by huge amounts of buyback activity”.

US companies might have to borrow for potential upcoming rounds of repurchases as they’ve already used up a certain portion of their balance sheets for previous buybacks, according to McCafferty, indicating that further similar purchases could hurt their financial capabilities to some extent.

Meanwhile, the strength of the balance sheets of countries Nomura covered in the Asia-Pacific has turned out to be relatively more robust than those in the US.

China seems to be among the beneficiaries as the rebalancing of Morgan Stanley Capital International is expected to stimulate greater interest in the Chinese market, with extra money to be injected into it, McCafferty said.

“The MSCI changes — one in August and another in November — will bring more money into China’s market,” he said, noting that inbound capital would start flowing by the second half of the year should MSCI expand its A-shares inclusion quota according to plan — to 15 percent and subsequently 20 percent.

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