Asian stocks could lead a rally into year end, with China and South Korea standing out despite hedge funds’ reluctance to add risk after recent volatility, Bloomberg Television reported.
That would mark a shift from the past eight months of U.S. market leadership. U.S. stocks were expected to offer fewer opportunities, with investors needing to choose more carefully among companies.
The comments came in “It's Time for an Unloved Stock Rally: Market Analysis,” published Nov. 4. Treasury yields, which measure the return on U.S. government debt, had moved little on balance that day.
Slightly lower yields were linked to expectations of political gridlock, with less scope for tax cuts or aggressive government spending. That prospect was seen as somewhat less favorable for economic growth.
Recent volatility had also encouraged some demand for the relative safety of Treasuries. A Treasury Department announcement on government borrowing was due later that day, while yields were seen as having limited room to fall further.
Stocks had been expected to fall before the midterm elections. With that event past, the case for gains through year end rested partly on expectations that policy would change little.
The Democrats’ victory was described as clear enough to reduce their dependence on the party’s more extreme members. The election result was therefore seen as leaving the broader investment case intact.
Some Asian stock markets were already trading at steep discounts. South Korea’s longer-term appeal rested on a continuing shortage of memory chips, while Chinese shares had fallen sharply.
China’s government was taking stronger steps to support consumers, and its market was seen as capable of benefiting from uses of artificial intelligence. China and South Korea stood out within a broader expectation of Asian gains.
Support from oil prices was a condition for that regional performance. No price level or specific oil-market development was identified as necessary for the expected advance.
Hedge funds’ reluctance to take more risk complicated the case for a rally. Those that had made money were seen as particularly unwilling to jeopardize their gains so close to year end.
That hesitation could leave room for individual investors, who face less pressure from the calendar. Funds were expected to build positions slowly, leaving a rally without broad investor participation.
“It’s going to be an unloved rally,” the interview guest said. Concerns about financing artificial intelligence investments persisted, particularly for U.S. stocks, even as Asian markets were expected to rebound.
The rebound was expected to last into the new year, but depended on those financing problems not becoming more severe. The comments gave no timetable for when that constraint might interrupt gains.
