The recent market rally has legs amid improvements in leading economic indicators and company earnings, a result of policy stimulus, Credit Suisse said in its 2020 outlook. China and Asian equity markets are best positioned to benefit from the trade war easing and New Orders index component of the PMIs for China, Korea and Taiwan, which tend to lead economic recovery reflected the optimism, the Swiss Bank said. Earnings recovery in the world’s second-largest economy has compelled analysts to lift their 2020 earnings forecasts for Chinese companies by 12.7%. This underpins their expectation Chinese stock markets would outperform the global emerging market aggregate. While predicting a sub-6% growth for China GDP which it says will expand by 5.9%, it added real estate would cushion the manufacturing slowdown. Chinese authorities would support property investment growth in 2020 and given the lower bond supply, easing policy risk, and a manageable refinancing pipeline Credit Suisse’s investment theme of the property sector could also be played via real estate bonds.

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Nomura overweight on Asian credit

Despite a strong 2019 for Asian credit, Nomura said it has retained its preference for the asset class next year as interest rates will remain low and because valuations are reasonable and bond supply in G3 currencies will decline. The Japanese investment bank favors high yield over investment-grade bonds and leans towards China property and Chinese state-owned enterprises on a sectoral basis. It forecast that dollar bonds from Asia ex-Japan issuers will decline to $270 billion next year after 2019’s expected annual total of $300 billion. At the current aggregate of $294 billion, issuance has already overtaken the previous record of $288 billion struck in 2017. The current year’s tally was a huge rise over 2018’s total of $230 billion. Prominent among its underweight positions are Chinese industrials, Chinese privately-owned enterprises and Indian companies both high yield and investment grade.

China bond supply to grow 18%

A pick up in credit growth and fiscal easing will see China issuance rise to a net 12-13 trillion bonds next year from 11 trillion in 2019, Standard Chartered Bank said in a report. The growth will be led by central and local government borrowing to fund a rise in the deficit, although as a percentage of GDP it will be static.  It is with noting that the local government project bond quota is likely to increase to CNY 3.0-3.1 trillion in 2020 from 2.15 trillion in 2019. This is a more aggressive forecast than that made by AXA Investment Managers, after the quota for 2019 was exhausted. “We expect SOEs and local government financing vehicles to continue to dominate credit supply, while net issuance by privately owned enterprises is likely to return to positive territory in 2020 from -CNY 103bn YTD,” it said.

US megacaps to underwhelm on stepped up scrutiny

After a thundering performance in 2019, American ultra-large companies, mainly tech, will take a back seat as hawkish regulators and politicians make themselves heard, said a report from Capital Economics. In the United States, the leading Democratic Presidential candidates are widely known to favor stronger anti-trust investigations and in the EU bloc’s competition chief, Margarethe Vestager, has signaled she would like to do more in her second term in charge. Capital Economics said an index of the top 10 S&P constituents, by weight, had risen more than 35% – handily beating the S&P’s 25% and the rest of the market’s 23% gains.

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