The price destruction, the valuation compression that we have seen in Hong Kong and China due to the protest movements, the trade war and then the coronavirus, probably means now that the relative risk in the equity space is outside of that now, said Paul Kitney, chief equity strategist at Daiwa Capital Markets, adding that is part of the reason why they have upgraded Hong Kong and China to neutral from underweight.
"Underweight worked out well for us and we have recently upgraded China (A) to overweight,” he added.
“What we did in our Asia Pacific strategy is that we took down our biggest overweight which was India, we are still overweight but from a very large overweight to sort of minor one. We also took down our weightings and ratings in Singapore and Thailand from neutral to underweight,” said Kitney.
According to him, the real issue now is that does the coronavirus issue through its impact on the energy market lead to some form of credit shock.
Speaking about central banks, he said, “What we have seen so far has been a coordinated monetary policy intervention. We have seen the Fed with a surprise of 50 bps cut, which we had called well ahead of time. The RBI has cut rates. We are seeing easier credit conditions in China. We are going to see those central banks that have got monetary space easing now and for those economies where there is fiscal space, we are going to see fiscal policy intervention as well.”
Specific to India, he said the domestic demand would be an insulating factor. Sector specific, he said large private sector banks in India have seen improvement in asset quality.