Barron's interviews Christopher Wood, strategist at CLSA Asia-Pacific Markets and the author of the popular newsletter Greed & Fear. Some excerpts:
- There are few signs of a recovery in U.S. consumer demand and growth will likely be weak for an extended period of time. Banks may grow healthier but credit demand will stay depressed and we'll be facing a long period of deleveraging. The U.S. and Europe face the risk of liquidity traps.
- Wood's formal target on the S&P 500 is 1050 but he sees it falling below 875 in Q4 or next year.
- Asia and the emerging markets may see a modest correction but they stand out as the place to invest and their long-term prospects are good. Asia will be the biggest beneficiary of monetary easing in the U.S. and Europe. Rising trading volumes in Asia are in part because of increased domestic investor participation in the region.
- China, India and Brazil are all good choices. Investors should look at domestic themes in Asia and emerging markets, like financial services, real estate, and domestic infrastructure.
- In China, the blue-chips are primarily state-owned enterprises. Firms like China Mobile (NYSE:CHL), China Life Insurance (NYSE:LFC) and PetroChina (NYSE:PTR) are all major players without competitive threats, although there is the risk of regulatory change.
- India is more similar to the U.S. style of stock market. Because of the competition and diversity of sectors, India is Wood's "favorite emerging-market equity story" and the place he would choose to invest if he were limited to one investment.
- The theory of decoupling isn't being fully revived. Instead, there's "macroeconomic, incremental decoupling" where growth in China and India slowed but not to the extent some forecasted. There's been "zero evidence" of stock market decoupling.
- Asia has outperformed but there's no asset bubble yet. However, "if you had not invested anything in Asia up to now and had $100 to invest, I'd only invest a third of the amount today, and the rest after a correction."
- Wood believes Asian currencies will appreciate long-term, another good reason to own the equities.
- Taiwan and China will eventually settle their hostilities, giving Taiwan a boost. "People should buy Taiwan on pullbacks if they don't already own it, and take a long-term bullish view of the NT$."
(The full interview is available here.)