Asian Stocks May Rise a Further 18%, JPMorgan Says

(Bloomberg) -- Asian stocks outside Japan may rally a further 18 percent, helped by low interest rates, stimulus spending by governments and increased demand for riskier assets, JPMorgan Chase & Co. said.The MSCI Asia-Pacific excluding Japan Index may rise to 350, analysts led by Adrian Mowat said in a report, without stating their previous target. The gauge closed at 295.74 yesterday. Investors should be “overweight” in South Korea, Taiwan, Thailand and China, the report said.The MSCI regional index has rebounded 20 percent this year after slumping a record 53 percent in 2008, outpacing the 0.4 percent increase in the MSCI World Index. Chinese stocks are the region’s best performers this year, as a 4 trillion yuan ($586 billion) government stimulus package shielded the economy.

“China has led the recovery in both markets and economies,” the analysts wrote. “As China discounts its economic recovery we are reallocating capital to other North Asian economies that are later in the recovery phase.”The CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 50.1 in April, signaling the first manufacturing growth in nine months, a report showed yesterday.

Chinese Banks
Investors should buy shares of Chinese banks, as well as financial stocks in Asia, as emerging markets outpace the recovery in developed economies, Mowat said in a Bloomberg Television interview today. He also recommended consumer stocks including Chinese carmakers, without naming specific companies. They should avoid so-called defensive stocks.

“Our advice is you must sell your defensive stocks,” he said from Hong Kong. “That was correct in a bear market, that’s not correct in a recovery trend.”

He also said the MSCI Emerging Markets Index may reach his year-end target of 900 ahead of his prediction as economic data, such as China’s manufacturing figures, point to a recovery. The measure rose 0.9 percent to 707.20 as of 10:43 a.m. in Singapore, the highest since Oct. 3.The index has risen 9.7 percent since Mowat set his year- end target for the gauge on April 16, compared with the 7 percent gain in the MSCI World Index of developed markets.

‘Tail Winds’
“There are some very substantial tail winds for emerging markets,” Mowat said in the interview, citing improving ties between China and Taiwan.Emerging-market stocks may “break out” into a bull market at the end of the year as falling interest rates and easing inflation make equities more attractive, Templeton Asset Management Ltd.’s Mark Mobius said on May 3.Mobius reiterated that emerging markets are “building a base” for the next rally. Chrysler LLC’s bankruptcy filing and other “short-term risks” may hold back the rally, while speculators may bet stocks will fall, he said.
Developing markets made up all 10 of the best-performing stock indexes in 2009, led by Peru and China.