LIVE MARKETS-EM Asia and rotation out of US Stocks

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EM ASIA AND ROTATION OUT OF US STOCKS

Where investors go if they really do keep moving money out of U.S. equities is one of the big medium-term questions for markets.

Societe Generale have a big note out on Tuesday, and - perhaps unsurprisingly, given it's largely written by their EM Asia analysts - they think EM Asia could be a beneficiary.

Levity aside, they have a few solid reasons for their call. It'd be a meaningful shift the last time EM Asia equities sustainably outperformed U.S. markets was 2001-2007.

Firstly, valuations. Soc Gen argue these are low in Asia, particularly in absolute terms in Korea - a forward P/E of 8.5x - and India, where recent derating has seen them fall.

Then there's the dollar. EM Asia equities historically outperform when the dollar weakens. The analysts give various reasons, including the fact that Asian portfolios hold a lot of U.S. assets - not good if the dollar is weakening - possible foreign flows, and the lower cost of foreign capital for Asian companies.

The missing element, say SocGen, is a broad-based earnings recovery, but they think this could come, and they see potential in Chinese tech, and Korean and Indian domestic stocks.

(Alun John)

EARLIER ON LIVE MARKETS:

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