It's time to play China's cyclical rebound, Goldman Sachs said, suggesting a general tilt toward North Asia and away from South Asia following "unambiguously positive" data from the mainland in August.
"This offers the clearest way to gain exposure to the dominant theme of improving global growth," while limiting exposure to the monetary policy risks that are pressuring markets such as India, Indonesia and Thailand, Goldman said in a report Wednesday.
Goldman's call follows encouraging Chinese economic data which suggests that the world's second-largest economy is on track for a recovery. Industrial production rose 10.4 percent on year in August to reach a 17-month high, while exports rose 7.2 percent on year, beating Reuters' forecast for a 6 percent rise.
A brighter economic outlook has already helped lift Chinese shares, with the benchmark Shanghai Composite stock index hitting a three-month high on Wednesday.
While commodity cyclicals – stocks that tend to move in step with the ups and downs of the economy – have been poor performers over the past couple years, weighed by concerns over China's growth, the segment has picked up recently. The rally could continue, Goldman said, noting the entry point, growth potential and valuation are better than many alternatives.
(Read more: Goldman cuts earnings forecasts for South Asia)
On the whole, China's stock market might not be the best way to play the uplift. Goldman expects the mainland's equity market will likely be stuck in a wide volatile range, supported by inexpensive valuations but capped by structural reforms aimed at shifting growth toward domestic consumption and reducing debt loads.
