Five months into the year, widespread expectations that stocks in China, South Korea and Japan would rally in 2014 have failed to bear fruit, frustrating those betting North Asia would lead gains in the region.
In Tokyo, the Nikkei 225 index is down 10%, making it one of the world's worst-performing stock markets after a year when it was one of the best. Chinese stocks listed in Hong Kong--the traditional route for foreign investors betting on China--are down 5.8% while equities in Korea are flat for the year.
The selloff comes as both China and Japan, Asia's two biggest economies, have seen investor ebullience fade over their ambitious reform programs. China's early efforts, such as cutting industrial capacity, has shown clear signs of weighing on economic growth, damping the appeal of a country also working to clean up years of runaway lending.
'There are big issues in China,' said Joshua Cragg, an Asian fundamental equities portfolio manager for BlackRock Inc. 'It's very difficult to put a price on it.' That uncertainty is deterring investors from what otherwise looks like a cheap market, he said.
By contrast, South Asian markets like Indonesia and India that were out of favor at the start of the year have rebounded sharply, bolstered by elections and investors returning to higher-yield emerging markets as U.S. bond yields remain low. The yield on the U.S. 10-year Treasury note has bucked expectations and remained well below 3% for much of this year, yielding around 2.43% late Thursday.
The slide in Chinese stocks in particular has surprised many strategists who told clients at the end of last year to load up on their investments in the country following the end of China's reform-minded plenary meeting.
Goldman Sachs Group Inc. in late November upgraded China to overweight, saying North Asia was a preferred investment area for 2014 and that it expected China's reform push to reinvigorate the market. The bank said then it expected the Hang Seng China Enterprises Index to rise 20% by the end of 2014, hitting 13,600. The bank has since softened that call, although says it still largely prefers North Asia. The HSCEI closed Thursday at 10,185.21.
Others aren't as optimistic. UBS AG in November also upgraded Chinese stocks to overweight in the wake of the country's plenary meeting. Strategists remain upbeat on North Asian stocks--in particular Japan--but this month cut China to neutral as concerns build around the country's slowing property sector.
'Investor conviction on China is very low,' said Tim Franks, head of hedge fund sales for HSBC Holdings in Hong Kong. 'They don't have any clarity and they just can't quite get themselves to buy it yet.' HSBC had a bearish call on Chinese stocks until April, when it upgraded China and downgraded Malaysia and the Philippines, saying 'the wide divergence in Asian equity market performance in 1Q cannot continue.'
There have been some bright spots. Taiwan, which Goldman Sachs upgraded in addition to China in November, has done better than its northern peers with the Taiex index currently at a more than three-year high. Stocks linked to the global technology supply chain have rallied sharply, including Apple Inc. suppliers Taiwan Semiconductor Manufacturing Co. and Pegatron Corp. The two stocks are up 18% and 45%, respectively, this year.
Some investors also say the North Asia trade will pay off with time. Catherine Yeung, an investment director for equities at Fidelity Investment Managers, said the firm has reduced its China exposure since the start of the year although it continues to see opportunity in the cheaper markets of China and South Korea.
'You are seeing some very attractive multiples, especially versus Southeast Asia,' Ms. Yeung said. Thailand, where the SET index is trading at 17 times last year's earnings, looks 'very expensive,' she said. The Hang Seng China Enterprises Index is trading at six times earnings by comparison.
Until then, however, investors like Hong Kong hedge fund Central Asset Investments are keeping their focus on countries like India, where the fund is studying smaller-capitalization companies that could benefit from an increase in infrastructure spending after the election victory of the pro-business Bharatiya Janata Party in May.
China 'has been more of a trading market for us,' said portfolio manager Armand Yeung. 'Valuation is cheap but until they do some more dramatic reforms...there haven't been a lot of changes.'
Agence France-Presse/Getty Images日经指数今年以来下跌10%。
贝莱德(BlackRock Inc.)亚洲基本面股票投资经理克拉格(Joshua Cragg)表示，中国存在重大问题。很难明确其负面影响。这种不确定性阻止投资者进入原本看上去处于低位的市场。
汇丰控股(HSBC Holdings)驻香港的对冲基金销售主管Tim Franks说，投资者对中国的信心严重不足。他们对市场前景感到茫然，他们只是无法说服自己买进中国股票。4月汇控将中国股市评级上调，但在此之前，该行一直看跌中国股市；当月汇控还下调了马来西亚和菲律宾股市评级，并表示，第一季度亚洲股市走势大范围背道而驰的局面不能延续。
亚洲股市一直也存在一些亮点。去年11月与中国股市一道被高盛(Goldman Sachs)上调评级的台湾股市表现一直强于东亚其他股市，目前台湾证交所加权指数处于三年多来高点。与全球科技供应链相关的股票已大涨，如苹果概念股台湾积体电路制造股份有限公司(Taiwan Semiconductor Manufacturing Co., 简称：台积电)及和硕联合科技股份有限公司(Pegatron Co., 简称：和硕)。今年这两只股份分别上扬了18%和45%。
一些投资者也表示，随着时间的推移，投资东亚股市终将获得回报。Fidelity Investment Managers负责股市的一位投资主管Catherine Yeung说，他的公司自年初以来已减持中国股票的仓位，但该公司仍认为中国和韩国这样的低估值股市仍蕴含机会。
但直到那时，像香港对冲基金中环资产投资基金(Central Asset Investments)这类投资者正把主要精力放在印度这类市场，中环资产投资基金正研究印度的小市值股份，这类股份可能受惠于印度人民党(Bharatiya Janata Party)5月份大选获胜后推进的基建支出增加，该党派支持商业发展。