The US-listed investment group sets out its stance on a range of Asian stock markets.

BlackRock, the world's largest listed investment firm, strikes a broadly optimistic tone in its outlook for Asian equities and fixed income markerts, according to a mid-year note on its views about the region.

The US-headquartered firm ($5.4 trillion of assets under management at end-March) said that in China, for example, it favours energy and materials sectors, and some financials, arguing there has been a "sgnificant" reform in some sectors such as steel and materials, although deleveraging of some sectors needs to happen.

“Asia is experiencing growth across the board, playing to investor appetite for risk. We see resilient dynamics for the region through Asia’s exposure to global growth and positive signals on the ground. Reflation remains a dominant theme in the region that has driven valuations up since November. The fundamentals for Asia are the best they have been for five years and there has been meaningful earnings growth across the region, particularly for more cyclical stocks. This is despite recent economic data not being as supportive as sentiment," Andrew Swan, head of Asian and global emerging market equities at the firm, said.

"China has experienced a doubling of nominal GDP over the last year, which has been supportive of company profits and translated to a rise in valuations. Recently, there has been some cooling sentiment in China related to prudent policy tightening to counter an uptick in inflation. Policy makers continue to balance reform and growthm," he continued.

India
"India continues to be one of the most attractive macro fundamental stories in Asia, whilst making some bold reforms, such as de-monetization and the introduction of a general sales tax, which should aid a more consistent growth trajectory. We see value in the power and energy sectors, both of which offer a lot of potential, along with some auto stocks that have strong underlying fundamentals," Swan said.

Turning to other countries, Swan said economic growth has benefited other Asian economies, particularly those with large technology sectors, such as South Korea and Taiwan.

"South Korea’s economy is tied in to global growth cycles leading to domestic stocks recovering from their position a year ago, and delivering the best performance of any market in Asia in the first quarter of this year. The technology sector has been the big gainer and we have seen prominent earnings upgrades and corporate governance improvements across the board," he said.

As far as Taiwan and its tech sector is concerned, Swan said that while the market is well placed to capture the impact of global growth, the underlying fabric of the secctor is not as strong as market sentiment indicates and valuations of equities look to be "stretched". As a result, BlackRock is cautious about putting more money into the Taiwan market.
Malaysia the laggard

Turning to Malaysia, BlackRock said that the country is behind its peers in making structural reforms.

"As a consequence, and combined with some uncertainty to the political backdrop, international investors have not participated in the market. There are signs that sentiment is becoming more positive: the market has underperformed Asian peers and pockets of relative value have emerged as a result. Further strength in both Thailand and the Philippines is dependent on infrastructure spending commitments being delivered, though there are select opportunities in materials in Thailand, and financials in both markets," the firm said.
BlackRock also is ambivalent about Indonesia; the country "remains a resilient longer term macro story, but one that is adjusting to lower prices of commodities".

"Meaningful, structural reforms are coming online, which have contributed to a ratings upgrade of Indonesia’s sovereign bonds by Standard & Poor’s to reflect the assessment of reduced risks to the country’s fiscal metrics.* We see good investment opportunities in the financials and infrastructure sectors, though on a more select basis now as valuations have risen. We also have a select approach to Singapore, where we see some opportunities in financials. In Hong Kong, Macau gaming offers some potential though the overall market remains susceptible to US interest rate hikes," the investment house said.

Finally, as far as Japan is concerned, BlackRock said the country's equity market is "improving gradually and consumer confidence is improving".

"However, yen strength has meant some large cap exporters have underperformed, in contrast to stocks exposed to improving domestic demand. A gradual uptick in wage growth and inflation mean that Japan is still emerging from a long period of stagnation, but overall the situation is positive," it added.