(Bloomberg) — Nomura Holdings Inc. strategists boosted their model allocation toward North Asia stocks by upgrading Taiwan, saying the possible end of Federal Reserve’s rate hike campaign bodes well for the region.
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The Fed’s dovish pivot in November “has reduced risk of a US hard landing in 2024, and thus we are adding back to the North in Asia,” strategists including Chetan Seth and Anshuman Agarwal wrote in a note. Strong earnings growth expectations driven by the chip sector and China along with a softer dollar are among reasons the broker is “modestly positive,” they said.
The latest positioning change comes after Seth and team had turned cautious on Asia excluding Japan stocks on Sept. 26. Since then, the MSCI Asia excluding Japan Index has underperformed a benchmark for global stocks by about four percentage points. Nomura expects the Asia ex-Japan gauge to reach 673 by end-2024, implying 10% upside from Tuesday’s close.
They are staying “tactically” overweight on China and South Korea heading into the first quarter of 2024. Nomura’s stance reflects growing optimism toward developing market assets as traders price in multiple rate cuts by the Fed next year. The tech-heavy markets of Korea and Taiwan stand to benefit from lower borrowing costs, while cheap valuations are a reason to look forward to a rebound in battered China equities.
Still, Nomura strategists warned it won’t be a “smooth sailing” as uncertainties may stem from political cycles in Asia and policy outlooks from US and China.
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