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Nomura urges investors to turn to Asia, Japan

NEW YORK, June 30 (Reuters) - Global investors should turn their sights on Asia in the third quarter, as higher interest rates will make equities from the region a bargain, strategists at Nomura Holdings Inc 8604.T said on Monday.

At a briefing in New York, Nomura chief Asia strategist Sean Darby said skyrocketing energy and food prices will force central banks across the region to raise rates aggressively over the next four to six weeks.

That will initially bruise assets across Asia, but he said it will provide a great opportunity for investors to buy at bargain prices toward the end of the quarter.

“The third quarter is going to be a time to go back and revisit the Asian markets because, by then, we’ll have seen a real capitulation phase,” he said.

“By that point, equities will probably be back to some of the lows we’ve seen in the last 10 years, but there won’t be much financial distress, because the balance sheets are pretty good,” Darby said.

He said Nomura is bullish on Korea, Malaysia, Thailand and Hong Kong, and would look to acquire Taiwan and Australia toward the end of the third quarter.

Darby said emerging Asia has kept interest rates too low for too long, and that has fed a massive demand for commodities and resulted in a spike in global inflation.

But policies are already changing on the periphery, he said, with countries such as Vietnam and Pakistan sharply hiking interest rates in recent months.

India also raised rates by 50 basis points and raised banks’ reserve requirement ratio by 50 basis points as well.

“What happens at the periphery of the Asian economic universe tends to arrive at the core a bit later on,” he said.

He also said higher interest rates will hit domestic demand, adding “I don’t think that’s been incorporated yet into share prices.”


The outlook is slightly different, but no less bullish, for Japan. Seiichiro Iwasawa, Nomura’s chief Japan strategist, said the Bank of Japan, unlike other central banks, is unlikely to raise interest rates as long as earnings remain weak.

But that removes uncertainty for investors, who can also take comfort in the Japanese corporate sector’s ability to withstand shocks to the operating environment.

“Given the macroeconomic environment, I think Japan is in a relatively favorable position,” he said.

“Right now, it’s pretty much the case that equity investor sentiment about Japan is quite low. That means all sellers are pretty much gone,” he said, setting up a situation for domestic and overseas buyers to return to buy stocks at cheap prices.

Among companies, he said the bank favors telecommunications and Japanese machinery companies with high barriers of entry.

Iwasawa said he saw the yen stabilizing against the dollar over the next six to 12 months.

“It’s difficult for me to say the yen is likely to rise now, but at the same time it’s not so easy to say it will go very much lower from its current level, especially against the dollar,” he said. (Reporting by Steven C. Johnson; Editing by Jonathan Oatis)