(Bloomberg) -- UBS Group AG’s private-banking arm expects Asian stocks to rise with gains potentially exceeding more than 20% by the end of next year, as companies and economies gradually recover from the impact of the pandemic.
Firms in Asia excluding Japan are primed to benefit after earnings and economic growth bottom out globally this quarter, Min Lan Tan, head of the Asia-Pacific chief investment office at UBS Global Wealth Management, said in a call with reporters on Wednesday.
In a report, UBS said it sees 0.5% earnings growth this year and 16.8% next year for Asia ex-Japan stocks, which combined with “undemanding valuations” will give stocks “strong support.” Tan said some companies will gain greater clout because of stronger balance sheets and market consolidation.
Equities have “room to move higher” with potential market upside of over 20% over the next six quarters, Tan said. Positive vaccine developments and stimulus measures will allow a sustainable reopening of economies without a second wave of infections “overwhelming” health care systems, she said.
Asian stocks have recovered most of their losses this year as the reopening of economies globally gathers pace, with trillions of dollars in stimulus measures supporting the rebound. Now, strategists are emphasizing the importance of stock selection and balance sheet strength in picking out companies that are able to weather the drop in economic activity and risks of a second wave of infections.
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Tan expects economic growth globally to normalize in the first half of 2021. Within Asian equities, which is among its most preferred globally, UBS favors stocks in Singapore, China and India.
The bank continues to back Asian credit. It’s also adding income to portfolios through exposure to U.S. high-yield and investment-grade credit as well as emerging-market dollar sovereign bonds as the Federal Reserve is unlikely to raise interest rates through 2022, Tan said.
Here are other highlights from the briefing:
- Tan doesn’t expect a re-imposition of nationwide lockdowns in the U.S. or China, and said Beijing has infrastructure in place for a “targeted approach” in curbing the re-emergence of virus cases
- UBS sees cyclical and value stocks “closing the gap” with growth ones globally, with a preference for developed market equities such as U.K. and German stocks, mid-caps in the U.S and euro-zone industrials. Hedge funds have an advantage in the current stock-picking market, Tan added
- The yield spread over Treasuries on the notes issued by developing nations could tighten further to 400 basis points, Tan said. The premium was at around 700 at the height of the pandemic crisis in March, according to a JPMorgan Chase (NYSE:JPM) & Co. index
- In Asian credit, UBS favors investment-grade bonds and Chinese property bonds
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