China, India, Singapore and Indonesia offer Asia's best stock investment opportunities outside of Japan, while South Korea, Malaysia and Thailand have the least appeal, J.P. Morgan Asset Management said on Wednesday.
The outlook for global equities in general is positive because corporate earnings are strong, inflation is subdued and global growth remains on track, added Geoff Lewis, head of investment services at JF Asset Management, which had more than US $26 billion in assets under management at the end of the first quarter.
The company is part of the fund management arm of J.P. Morgan Chase & Co, which had US $873 billion in assets under management as of March 31.
"Everybody is expecting that markets will be weak over the summer. We think it would be wrong to be underweight because we have seen a correction in markets, quite a decent-sized one. We don't think there's another major leg coming," he told a media briefing in Hong Kong.
"We think it's more likely that markets will slowly grind higher, but we can't see there's a strong catalyst, not until the Fed has come out and said it's done its work." The fund industry executive said there was a "strong chance" of a fourth-quarter stock market rally, once investor concerns about inflation and rising interest rates had calmed.
Global stock markets as measured by the MSCI World Index have fallen almost 11 percent since hitting a record high on May 8, partly on concern inflation could accelerate and prompt aggressive tightening by central banks.
"We see this correction definitely as a mid-cycle pullback from overbought levels ... we don't see a major deterioration in fundamentals," he said. "If there was further equity weakness, we would want to increase exposure to equities and use up our cash allocation."
Within Asian markets outside of Japan, valuations are relatively attractive, though investors should favour stocks geared to domestic demand over cyclical issues, said Grace Tam, manager for investment services with JF Asset Management.
The firm is overweight China, India, Singapore and Indonesia, neutral on Hong Kong, Australia, the Philippines and Taiwan, and underweight South Korea, Malaysia, Thailand and New Zealand.
Tam said strong income growth should support domestic demand in China, while the second-quarter selloff in Indian stocks had made their valuations more attractive for long-term investors. Less-volatile Singapore was rich in stock picks, she added. By contrast, the firm found few stocks it liked in Malaysia and was pessimistic about corporate profits in South Korea.