Asia's strongest stock rally in five years might be more durable than the bull run in the S&P 500 Index.
Oaktree Capital Group LLC's Howard Marks sounded the alarm in his most recent letter to clients, pointing out that five technology super stocks -- Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc. -- are driving U.S. shares to record highs. These five firms alone have contributed almost 25 percent of the S&P 500's 11 percent year-to-date rise.
Asia has its own FAANGs. Tencent Holdings Ltd., Alibaba Group Holding Ltd., Samsung Electronics Co., Taiwan Semiconductor Manufacturing Co. and Foxconn's Hon Hai Precision Industry Co. are responsible for almost one-third of the MSCI Asia ex-Japan Index's 28 percent rally since January. Technology stocks in Asia as a group have soared 35 percent so far in 2017, buoyed by an average earnings upgrade of 23 percent from sell-side analysts.
But Asia's gains are broader than that. Whereas the rally in the U.S. is driven mainly by technology firms, followed by equally expensive healthcare stocks, in Asia it's financial institutions, which are trading at an undemanding 13 times forward earnings, that are playing a significant role. In fact, financials as an industry group saw some of the largest earnings upgrades over the past month.
Even more encouragingly, investors in Asia are seeing strong earnings beats, because expectations for financial institutions (which include developers) weren't high to start with. China Evergrande Group touched a record high this week after the company said half-year profit may triple from a year earlier, driven by soaring property prices and rising home sales. It's a similar picture in South Korea, where KB Financial Group Inc.'s second-quarter net came in at 990.1 billion won ($890 million) versus the 784 billion won analysts had been forecasting.
Billionaire fund managers in America might be hoisting red flags as U.S. stocks soar to unprecedented highs. But investors in Asia can take comfort from the fact that their rally has more than one leg on which to stand.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.