By Eric Lam and Sofia Horta e Costa
Its been a tumultuous two weeks for equity traders in Asia. And at some point, it just gets to be too much — strategists from Goldman Sachs Group Inc. to Morgan Stanley have begun slashing their forecasts.
Theyve have had to wrestle with a rapidly escalating trade war between the U.S. and China, a Fed rate hike, the inconclusive Singapore summit between Trump and Kim, and even a series of hacks at South Korean crypto exchanges buffeting digital currencies.
The MSCI Asia Pacific Index of stocks resumed its slide Thursday, extending a string of losses over six of the past seven trading days to erase annual gains and approach its lowest level this year.
Heres a look at the issues facing some of the key markets in the region as investors and analysts inch closer to waving the white flag on 2018.
Asia Pacific
Goldman Sachs is starting to back off its long-time bullish call on Asian stocks, paring its 12-month target for the MSCI Asia Pacific excluding Japan index Thursday to 625 from 640.
U.S.-China trade tensions have escalated against an unfavorable macro backdrop, with global growth slowing amid tighter U.S. monetary policy and a strengthening dollar, strategists led by Timothy Moe wrote in a report dated Thursday.
Goldmans not quite ready to bail out completely, however — its target implies gains of about 14 percent from current levels.
Meanwhile, strategists at UBS Group AG see Asian stock markets pricing in a one-in-five chance of a more serious trade war causing an earnings recession. A full-fledged trade war could see stocks in Asia tumble 30 percent from this years peak, they said.
Hong Kong
Dont count on a rebound in Hong Kong stocks any time soon either, according to strategists at Morgan Stanley, who slashed their 12-month target for the Hang Seng Index by about 10 percent this week. The new forecast implies a slump of 18 percent from the gauges January peak, nearing the 20 percent correction commonly associated with a bear market.
“The Hang Seng Index is at risk of a further sharp drawdown near term,” Morgan Stanley strategists led by Jonathan Garner wrote in a note Wednesday.
Hong Kong is especially vulnerable to volatility in the U.S. and China given that its currency is pegged to the dollar and therefore tied to U.S. monetary policy, while many of its companies depend on China for their earnings.
China
The outlook is no better in China, where the Morgan Stanley strategists now forecast the CSI 300 Index to fall into a bear market that will last for the next year. Alongside the standard emerging-market and trade-war pessimism, deteriorating liquidity conditions in China and a weaker yuan will also weigh on stocks, they said.
CICC, meanwhile, slashed its year-end estimate for the Hang Seng China Enterprises Index to 14,000 from 16,000 as company multiples are unlikely to expand as much as previously thought due to tighter liquidity conditions both at home and globally.
Philippines
Asias worst-performing equity index this year, which entered a bear market Thursday after a 22 percent drop from its January peak, wont be able to pull out of its own swoon unless the Philippine central bank does more to help the stock market recover, according to the nations biggest money manager.
Fritz Ocampo, who manages about $19 billion as chief investment officer of BDO Unibank Inc. in Makati, said the central banks second interest rate hike this year isnt enough to fully arrest the pesos slide.
“We may have not seen the bottom yet,” Ocampo said.
Malaysia
Meanwhile, a stunning May election that ended six decades of rule by the same party has led to even more selling in Malaysia, with stocks plunging for a ninth straight day.
Investors adjusting to a new prime minister seeking to shore up the nations debt have fled the market, while analysts have cut earnings forecasts so much that Malaysia has overtaken South Korea as the Asia Pacific market with the biggest downgrades in profit projections this year.
“The short-term outlook for Malaysian equities will remain tough as the new government is trying to find out the depth of the financial issues,” said Christopher Wong, senior investment manager for Standard Life Investments in Singapore.
Whats Next?
While the bears are plenty, Maybank Kim Eng strikes a more optimistic tone. Investors should look beyond the short-term noise and focus on the regions long-term growth prospects, John Chong, head of the investment-banking arm of Maybank said at its Invest Asia U.K. conference in London.
“Asia is now better positioned to weather the volatility,” he said. “We believe investors will see real value emerging in Asian corporates after the recent market tantrums and should capitalize on the opportunity.”
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