Buying the dip? Choose Asia
results to show up first in commodity-intensive industries such as airlines, processed foods and autos, with a lag of up to two quarters. In the longer run, Emerging Asian economies’ nominal growth rates (in USD terms) are running at about twice the level in the eurozone, hence corporate profits should outperform.
To be sure, Emerging Asia’s equity earnings growth depends on getting a helpful lift from the US and EU economies, especially since Chinese growth is softening. Fortunately, the US growth outlook remains decently strong with leading indicators such as the ISM manufacturing PMI defying market concerns. Furthermore, a stronger US dollar and weaker energy prices represent an effective tax cut for US consumers. The big question mark in this equation is, of course, the weak state of the eurozone economy. Gavekal has mixed views on this topic, but there are reasons to think that this weekend’s Asset Quality Review results release will at least take away one more uncertainty.