The Asia-Pacific region can recover faster than the West?
The Asian region, which is home to the second and third largest world economies, is attracting more and more attention from investors and market specialists. And it's not just about the special path that the Chinese economy is following. And not only in the super dovish monetary policy of the Bank of Japan, which continues to devalue the national currency.
So what is it then? Is it because aggressive interest rate hikes by major central banks remain "overboard" and their impact is remote and muted? And what kind of fear of recession can we talk about if, for example, the Australian economy has fully recovered from the effects of COVID-19 and is thriving on rising commodity prices? Of course, in Japan, with its dependence on imports, the economy is still very fragile. However, inflation is several times less than, for example, in the United States, and its growth is due to external factors.
Asian stocks really fell in price
Let's not forget that on the same fears (recession and inflation) in June, the valuations of almost all Asian stocks reached the lowest level since the beginning of the pandemic. Moreover, the regional stock markets of the Asia-Pacific region have been declining for the third consecutive month. Concerns about the loss of income and the growth of the cost of capital, expressed in the price-to-earnings ratio (P/E), led to the lowest performance for stocks:
- South Korea – 8.48;
- Hong Kong – 9.94;
- Taiwan – 10.02;
- Thailand – 14.54;
- Malaysia – 13.71.
Recession is not for China
As for China, the latest indicator of its P/E increased from 9.38 a month earlier to 10.08. In addition, the government plans to introduce large-scale fiscal assistance in the third quarter of 2022. In order to revive consumer demand, which has suffered from a series of quarantine restrictions due to COVID-19, and to help overcome their consequences, a program of fiscal stimulation of the economy worth $220 billion is being prepared. Such active support of the authorities can lead the country's economy and corporate revenues of China to recovery. At a time when the rest of the world is likely to slow down or even go into recession.
Applications increased by a third
The surge in listing applications from Chinese companies also speaks to the growing appeal of China for investors and equity. The number of IPO candidates in China doubled to almost 1,000 applicants in June. This figure was the highest in at least three years. According to experts, such a rush can partly be explained by the easing of restrictions on COVID-19, as well as the fact that those wishing to list on the Chinese stock exchange tried to have time to apply before June 30. In this case, they could avoid the need to update the results of the first half of the year and not delay the process even more.
According to experts, the Shanghai stock exchange led the world in terms of IPO volume in the first half of 2022. In June alone, Chinese regulators and stock exchanges accepted 444 listing applications, bringing the total number of IPO applicants to 933. Three Chinese trading platforms that have adopted the American IPO registration system, compared to the same period last year, recorded a 31% increase in applications for more than a year.
Half of the IPO revenue
In the first six months of 2022, the volume of IPOs (in Shanghai and Shenzhen) is worth $46.3 billion. And this is about half of all global IPO revenues! Most likely, the world's largest fundraiser in the first half of the year, the Chinese IPO market will continue to lead in the second half of the year. The largest placement by 2022 may be the Swiss agrochemical group Syngenta, which will attract about 10 billion US dollars. According to exchange filings, a listing worth about $1 billion will be made by Megvii, a company blacklisted in the US in the field of artificial intelligence (AI). Investors are watching the potential revival of the Ant Group IPO with no less interest. According to media reports, Jack Ma's company has received preliminary permission for listing from the central leadership of China. In addition, China's IPO plans are largely focused on sectors including:
- industrial production;
- telecommunications;
- healthcare;
- energy.
Buy on the rally!
And while the situation with COVID-19 in China still looks rather uncertain, and real estate companies may default on their debts, analysts see an improvement in the picture as a whole in the second half of the year. And market experts advise investors to take advantage of the short-term correction in the Chinese market and buy on the decline. Moreover, last month the Chinese yuan fell by 0.4% against the greenback, while the dollar index rose by 2.9% against the basket of major world currencies. Last month alone, the Shanghai Composite added 6.66%. And the Shanghai Shenzhen indicator is now in a very positive zone and will mainly grow in the coming months.
Asia-Pacific indices are on the positive side today
As a result of today's trading, all ATP indices closed in the green:
- Shanghai Composite – 0.27% (3364.4 p.);
- Shenzhen Composite – 0.93% (2227.66 p.);
- Hang Seng Index – 0.15% (21,620 p.);
- KOSPI – 1.84% (2,334 p.);
- Nikkei 225 – 1.47% (26,490 p.);
- S&P/ASX 200 – 0.81% (6,648 p.).
