PETALING JAYA: Volatility will likely remain elevated for equities in the Asian region excluding Japan, as the risk of recession is now being priced into the markets, says Nomura Research.
“There are two big issues for markets at least in the short term. Firstly, inflation, especially in the United States.
“How the Federal Reserve reacts to this by tightening monetary policy and how this will impact economic growth moving forward,” Nomura Research’s Asia-Pacific equity strategist Chetan Seth said at a briefing.
“We have also started to pencil in a recession that would potentially start in the fourth quarter of 2022. This is still a concern for markets,” Seth added.
He said another concern which has been ongoing pertains to China’s zero-Covid strategy, which the country indicates it will maintain, moving forward, despite recently coming out of strict lockdowns in the two megacities of Shanghai and Beijing.
“There are still concerns from investors here. Things have eased, but if there is a resurgence of Covid-19 cases, then we think the lockdowns will happen again and that can cause volatility in markets,” Seth said.
He said Nomura is “neutral” on Malaysian stocks for the moment.
Within the Asian equity space in general, he said the research house preferred value-oriented stocks as these provided a certain “margin of safety” on downside risks.
He also noted that Asia will continue to grow despite a recent risk-off sentiment in the United States due to a potential recession later this year.
“We are cautiously optimistic on Asian stocks with a mid-teen returns from Asian equities excluding Japan. This predominantly is due to more stabilisation in China stocks in the second-half of this year.
“There are many signs that equities in China are stabilising since the economic activity indicator is better than expected,” he said.
In Malaysia, he said the research house liked banks, as they are domestically oriented.
“We generally prefer stocks that are exposed domestically rather than external ones. Companies that generate revenue from within Asia will do better than companies that generate revenues outside of the region,” Seth said.