Citi Wealth Insights

Whilst Citi analysts see some headwinds as we enter into the summer low volume months, there are reasons to believe that the recovery in Asia may last through 2019.

While the rally so far has been mainly driven by policy easing, sentiment recovery and valuation re-rating, Citi analysts expect further upside to be driven more by fundamentals and earnings growth.

The China/greater China sector has had a stellar 1Q, with China H-shares and A-shares rallying 12.4% and 28.7%, respectively.

In line with recent strong data release, China’s economy has rebounded with the stock markets responding as A-share rose 28.7% in Q1. With a framework trade deal with the US in sight and government stimulus efforts coming through, Citi analysts are more confident that the economy stabilized in Q1 and should further recover in Q2.

Despite the 13% rebound in Emerging Markets (EM) equities from 4Q18 lows, the asset class has lagged behind Developed Markets (DM) which have rebounded +17%, led by the US. Citi analysts believe from current levels there remains more upside in EM equities compared to DM.

Citi analysts estimate that the current policy stimulus could boost Chinese GDP growth by 0.6 percentage points (pp), all else equal.