Emerging-market stocks may be headed for a “boom” amid a surge in liquidity toward the end of the year, HSBC Private Bank said.
Chinese stocks may be among the beneficiaries of the rally, as government restrictions on property investment may channel funds to the equity market, Arjuna Mahendran, the head of investment strategy for Asia in Singapore at HSBC Private Bank, said in a Bloomberg Television interview. Indian stocks may also extend their rally even as the central bank is poised to add to five interest-rate increases this year, he said.
The U.S. Federal Reserve said this week it’s willing to ease monetary policy further to spur growth and support prices after a slowdown in the pace of recovery and jobs growth. The Fed’s statement, along with indications from central bankers from Japan to the U.K. that further stimulus may be in store, has helped drive the MSCI Emerging Markets Index to the highest in more than two years.
“There’s clearly a lot of excess liquidity that’s going to slosh around the global markets and all of that is headed in the direction of emerging markets because the growth in these regions is superior to what you find in the West,” Mahendran said. “There will be a liquidity-driven rally in emerging markets in the months ahead.”
Elsewhere in Asia, Mahendran said he favors South Korea for its “undervalued” currency. Excluding the Hong Kong dollar, the won is the worst-performing currency in Asia outside of Japan this year.
HSBC Private Bank also favors Australia and Indonesia, which have large holdings of commodities, he said.