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Credit Suisse sees ‘improving’ fundamentals for Asia stocks, with Hong Kong at its ‘cheapest’ levels in decades

An investor watches the electronic board at a stock exchange hall on February 25, 2019 in Nanjing, Jiangsu Province of China.

Su Yang | Visual China Group | Getty Images

As the world attempts to restart economies ravaged by lockdowns intended to curb the spread of the coronavirus, Credit Suisse sees an opportunity in Asia, where the fundamentals for stocks are “improving.”

Ray Farris, the firm’s chief investment officer for South Asia, told CNBC’s “Squawk Box Asia” on Wednesday morning that there were three main factors behind this view.

Firstly, the dollar is beginning to weaken, Farris said.

“A second key factor in Asia’s favor is that global liquidity levels continue to rise and within Asia itself … liquidity levels are rising,” he said. Thirdly, Farris added that Asia looks “cheap” at these levels as compared with many developed markets — particularly the U.S.

The Credit Suisse exec pointed to Hong Kong as an example.

“A market like Hong Kong, it’s about the cheapest it’s been in decades,” Farris said. “Although earnings there are going to suffer in the same way that earnings suffer everywhere — the gap between the extent of the fall in earnings in Hong Kong versus how much earnings have fallen in the U.S. — is, again, at almost record levels.”

Farris made his comments on Wednesday morning. The benchmark Hang Seng index has fallen more than 13% year to date, as of its last close.

Furthermore, he added, the magnitude of the earnings decline in Hong Kong has not been “nearly as large” as in the West. 

“We see that repeated across many of the Asian markets so we think dynamics are moving increasingly in Asia’s favor,” Farris said.

Hong Kong: From ‘underweight’ to ‘overweight’

Given recent political uncertainty after China’s approval of controversial national security legislation for the city, Farris said: “We used to be underweight Hong Kong, we’ve recently gone overweight.”

“The reason for that is valuations, we think, now fully price in all of those risks,” he said. “Everybody knows about the national security law, the market’s been beaten up as a result, and yet earnings are not weakening nearly as much as in comparable countries.”

On a relative basis, he added, Hong Kong is “cheap” and looks like it is “going to be able to produce a better earnings outcome.”

“We’re at the stage where we think that Hong Kong can begin to do a bit better than some other markets,” Farris said.

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