Goldman Sachs Asia stocks pick rising rates, recession risk and strong dollar

By Blake S. Gillen Last updated May 18, 2022

Goldman Sachs Asian strategists say markets face a “troubling triad” of rising rates, recession risk and dollar strength – but they expect some stocks to benefit. Here are some of their buy-rated picks, a number of which are on Goldman’s condemnation list. “Asian regional markets are off to one of the worst starts in 30 years,” Goldman strategists, led by Timothy Moe, said in May. 11. The MSCI Asia-Pacific ex-Japan index is down more than 16% this year, with five consecutive months of decline. “The only previous years where the first 5 month cumulative decline approached this were -14% in 2020 (Covid outbreak), -17% in 2000 (tech bubble burst), -12% in 1998 ( Asian financial crisis) and -11% in 1994 (FOMC rate hike shock),” the analysts added. The combination of rising interest rates, recession fears in the United States and the growing strength of the U.S. dollar are behind the weakness, Moe added. Read more These low-volatility funds offer stability when the Dow Jones swings 1,000 points Stocks could build on Fed rally, but volatility isn’t going away Goldman said short-term outlook “remains difficult” given these external pressures, as well as domestic headwinds like slowing growth in China. Although the bank has lowered its forecast for the MSCI Asia-Pacific ex Japan index given its expectation of continued near-term volatility, it still sees upside potential of 17% over the next 12 months. driven by future earnings growth and a moderate recovery in valuations. Bank stocks pick Goldman favors themes that can “deliver alpha returns in a more beta environment.” “These include the delivery of benefits (positive EPS [earnings-per-share] revisions, margin gainers), rate hike beneficiaries (buy rated banks), commodity supercycle (commodity cyclicals vs. global cyclicals) and cash yield (secure high dividend yield),” the bank said. Alpha and beta are risk ratios used by investors to determine whether their investments are doing well. Alpha is a measure of an investment’s return, while beta measures a security’s volatility. On banks, Goldman noted that “banks tend to outperform due to their fundamental exposure (better NIM and investment portfolio returns) and historically positive price relationship with higher rates. Goldman’s buy picks include National Australia Bank, State Bank of India, Bank Rakyat Indonesia, BOC Hong Kong and South Korea’s KB Financial. All are on Goldman’s condemnation list – its analysts Other stocks on Goldman’s list of banks listed for buy include Singapore’s DBS Group, HSBC, Standard Chartered and Indonesia’s Bank Central Asia.

The Federal Reserve Building in Washington, January 26, 2022.

Joshua Roberts | Reuters

Goldman Sachs Asia stocks pick rising rates, recession risk and strong dollar

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