Asia stocks may not rise much further as fundamentals remain weak, Credit Suisse says
19.05.2020, 08:01

Asia stocks may not rise much further as fundamentals remain weak, Credit Suisse says

CNBC reports that Asian equities are expected to trade within a limited range in the near term, according to a strategist at Swiss investment bank Credit Suisse, who cited earnings trends that suggest that fundamentals remain weak.

Stocks rallied from earlier lows, driven in part by unprecedented policy stimulus from central banks around the world, Suresh Tantia, a senior investment strategist at the bank, told CNBC.

"We believe Asian equities will enter a consolidation in the near term," said Tantia in an email. When shares consolidate, they typically trade within a limited price range.

"The Fed's action has addressed the (U.S. dollar) funding stress, stalling USD strength which has reduced outflows from the region in April," he added.

As investor confidence in the stock market wobbled in March over the uncertainty from the coronavirus pandemic, the demand for U.S. dollars surged. That demand came from a variety of sources including banks, investors selling dollar-based assets and issuers of dollar-denominated debt. All that drove the greenback higher against other currencies, and led to the outflow of funds from Asia.

The Fed's actions helped prevent equities from falling further.

However, Tantia pointed out: "Though these factors have been able to put a floor under the markets, the fundamentals need to improve for regional equities to rally from current levels." The global recession will have "a severe impact on corporate profitability, leading analysts to lower their earnings expectations," he added.

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