Markets in Asia got their first taste of Brexit generated volatility when they opened last Friday. The surprise vote in favor of leaving the EU sent shocks through the global financial system as investors braced for what could be a week full of uncertainties ahead.
However, Asian markets have the ability to resist the impact of these events. Additionally, the Federal Reserve’s decision to leave rates unchanged could act as a headwind for the region’s stocks. Adding stocks from Asia to your portfolio makes good sense at this point.
Turbulent Week Ahead?
The outcome of the referendum left most market watchers stunned. Traders and fund managers began preparing for the fallout of the vote on HSBC (HSBC) and other British stocks listed in Asia. Japan’s benchmark Nikkei was the worst sufferer in the initial hours of trading, ultimately ending the day 7.9% lower, marking its steepest one-day fall since the tsunami of 2011.
Shares in China were comparatively more insulated, with the benchmark losing only 1.3% on Friday. By Monday, stocks had staged a rebound with the Nikkei gaining 2.4% and the Shanghai Composite increasing by 1.5%. Markets had stabilized somewhat by Tuesday with the Nikkei gaining 0.1% and the Shanghai Composite ending 0.6% higher.
Resilience to Outweigh Volatility
Traders and market watchers are unanimous that trading will remain volatile this week. Investors will closely watch the outcome of the decision to leave the EU and look for signs of the contagion spreading across other regions. But several factors are working in favor of the Asian markets.
Firstly, events in Europe are likely to have only a limited impact on the region given the lack of dependence on that region. Countries in the region have limited trade volumes originating from Britain. Direct financing from financial institutions based out of the country is also manageable in nature.
Further, the likelihood of the Fed raising rates in the near future has reduced significantly which will aid growth focused stocks in the region. The Fed Chair has already expressed her concerns over the likely fallout of a Brexit and will remain wary of raising rates for a significant part of the year.
Our Choices
Asian markets have been significantly volatile following last week’s referendum in Britain. However, several factors will provide long-term resilience for markets located in economies experiencing impressive growth levels.
This is why picking stocks from Asia is a prudent option despite short-term jitters. Even then, picking winning stocks may be a difficult task.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
NTT DOCOMO, Inc. DCM offers telecom services in Japan.
NTT DOCOMO has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 14.3% for the current year. Its earnings estimate for the current year has improved by 10.8% over the last 60 days.
Hanwha Q CELLS Co., Ltd. HQCL produces PV cells, PV modules, silicon ingots, and silicon wafers in the U.S, Europe, South Korea, Japan, the People’s Republic of China, India, Turkey, and internationally. The company is based out of Seoul, South Korea.
Hanwha Q CELLS has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year
Himax Technologies, Inc. HIMX designs, develops and markets semiconductors that are critical components of flat panel displays and is based in Taiwan.
Himax Technologies has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year.
Cathay Pacific Airways Limited's CPCAY principal activity is the operation of an international airline based and registered in Hong Kong.
Cathay Pacific has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 16.2% for the current year. Its earnings estimate for the current year has improved by 17.2% over the last 30 days.
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