Optimistic strategists switch to riskier stocks in Asia

Asia has largely missed the global rotation into value stocks in recent months. But that may soon change as optimism is rising for the cheaper but more risky shares, some market watchers say.

Signs have emerged that some investors in the region are shifting their preference to undervalued stocks that are more dependent on economic growth, thanks to an improvement in macro data and rising bond yields. Expectations for a trade agreement between the US and China, along with a new wave of central-bank interest cuts, are expected to put a floor on the expansion across Asia.

It’s the right time to get ready for a potential comeback of value in Asia, according to David Wong, an investment strategist at Alliance-Bernstein who made an accurate call on US equities at the beginning of the year. Now, investors should “tactically” add value stocks in Asia and perhaps small caps as an addition to their core allocation of American shares, Wong said. For anyone looking to ride this wave in Asia, Wong recommends to stay with equities that have fundamental catalysts — think technology-hardware companies — to weather potential downside risks. Deep value, which refers to extremely cheap stocks, may still be too risky as signs of an economic recovery are still “preliminary,” he said.