China may be slowing down, but it doesn't mean growth has stopped there or in its growing economic sphere of influence, says Yiannis Mostrous of Global Investment Strategist.
We maintain our forecast for a mild slowdown in Chinese economic growth this year and lower inflation in the second half of the year. Once inflation moderates, the Chinese government will ease off its measures to tighten its monetary policy, providing a lift to the markets.
Our three favorite Chinese stocks, in order of preference, are China Construction Bank (Hong Kong: 0939), China Petroleum and Chemical Corp (SNP), and Anhui Conch Cement (Hong Kong: 914, OTC: AHCHY).
The Indian market also declined in May, as investors fretted over inflation, high commodity prices, and tightening measures by the Reserve Bank of India (RBI). Foreign institutional investors were net sellers of Indian stocks last month, selling $1.48 billion worth of stocks.
However, the most recent data showed that the country’s industrial output grew by 7.3% year-over-year, a strong showing that was led primarily by the manufacturing sector.
In regards to inflation, we don’t forecast any significant change to the current situation. India’s economic growth will slow, but it won’t collapse.
Consequently, inflation should remain at about 8%. This isn’t an appallingly high level, but the RBI will likely raise interest rates at its upcoming policy meeting next week.
Although the summer may prove to be a weak period for the Indian market, the long-term investment case for the country remains intact. Investors should regard any weakness in the Indian market as a buying opportunity.
Our two favorite Indian stocks, in order of preference, are Dr. Reddy’s Laboratories (RDY), and HDFC Bank (HDB).
The Hong Kong market was flat in May, although there were also some notable winners, such as Belle International (Hong Kong: 1880, OTC: BELLY), which gained 8%.
Hong Kong’s economy continues to enjoy a low unemployment rate of 3.5%, while inflation is hovering around 4% mainly because of higher housing prices. The market trades at a very reasonable valuation and will advance by the end of the year.
Property developer Sun Hung Kai Properties (Hong Kong: 16, OTC: SUHJY) is our favorite Hong Kong stock.
The Singapore market also flatlined in May, after gaining 2.8% the previous month. Although inflation remains relatively high at 4.4%, prices seem to have peaked and should gradually fall.
A stronger currency, combined with declining industrial production and a slowdown in housing and transportation prices (already underway), should help moderate inflation.
Keppel (OTC: KPELY) remains our favorite Singapore stock.
Malaysia’s market made marginal gains in May, and robust domestic demand augurs stronger growth in the back half of the year.
The central bank raised interest rates to 3% in May, amid strong domestic demand and robust exports. Should the country’s economy remain resilient, another rate hike by midsummer is a distinct possibility.
Malaysia’s economy expanded by 4.6% year over year in the first quarter, driven by strong growth from the manufacturing and services sectors.
The Malaysian economy is small and relatively open to trade, which makes it susceptible to any downturn in global trade. Although a slowdown in global trade this year will impact Malaysia, a global economic collapse isn’t in the cards.
Malaysia’s market will advance by the end of the year. We maintain our recommendation that investors should buy into Malaysia, especially during times of weakness, via iShares MSCI Malaysia Index Fund (EWM).
