Goldman Sachs has upgraded China and three Southeast Asian stock markets for 2022, and named some stocks on its regional conviction list as it expects the global economic environment to turn more challenging. "Some parts of the region offer greater opportunity in a more challenging global context," the Wall Street investment bank said in a recent Asia-Pacific outlook report. The bank upgraded China, Singapore and Indonesia to "overweight," and moved Thailand up a notch to "market weight." Meanwhile, Goldman downgraded South Korea and India to "market weight." An overweight position refers to an excess amount of an asset in a fund or investment portfolio compared to the benchmark index that it tracks. It also reflects an investor's opinion that a particular asset would outperform the sector average. Meanwhile, market weight means an asset's weight in a fund or portfolio is equal to that of the benchmark index that it tracks. It typically means an investor expects the asset to perform in line with the index. China: Upgrade to overweight China's economic growth is expected to slow in 2022 — but certain domestic conditions could help the stock market to recover, Goldman said in the Nov. 11 report. The bank explained that pressure on company earnings could start to subside in the second half of next year as worries over higher costs and China's property sector ease. In addition, Chinese policymakers are expected to ease both fiscal and monetary policies to support economic growth, said the bank. Authorities could also slow the pace of regulatory tightening, the bank added. Chinese stocks on Goldman's regional conviction list include tech giants Tencent and Alibaba , automaker Li Auto , lenders Postal Savings Bank of China and China Merchants Bank , as well as pharmaceutical and biotech firm Wuxi Biologics . Southeast Asia: More constructive In addition to China, Goldman also upgraded Singapore and Indonesia to "overweight," as well as Thailand to "market weight." The bank said it's "more constructive" about Southeast Asia as the region recovers from the Covid-19 pandemic, which would allow the economy to grow at a faster pace next year. That should boost earnings per share in most markets in the region, said the bank. Stock valuations in Southeast Asia are also "generally inexpensive" compared with historical levels, said Goldman. Goldman said it upgraded Singapore largely because banks — heavyweights on the MSCI Singapore index — are expected to gain from a rising interest rate environment. The potential addition of internet firm Sea to the index also adds to the attractiveness of Singapore, said the Wall Street giant. Indonesia was upgraded on the back of the country's accelerating economic growth, said Goldman. It added that banks — also heavyweights on the MSCI Indonesia index — could see improvements in loan growth and return on assets. Meanwhile, Thailand was moved up a notch to "market weight" as its economic reopening could boost company earnings, said Goldman. But market valuations are higher in Thailand compared with some regional peers, while Thai banks face weaker fundamentals, added the Wall Street bank. Southeast Asian stocks with "buy" ratings from Goldman include: Singapore: Oversea-Chinese Banking Corp , United Overseas Bank Indonesia: Bank Rakyat Indonesia , Bank Central Asia , Bank Mandiri Downgrades for India, South Korea India's stock market has been the best-performing market in Asia-Pacific this year. The South Asian economy is expected to grow at a faster pace next year — but that recover has largely been priced in, said Goldman. "We think the recovery is well priced at current peak valuations. We, thus, take profits on our India overweight and lower it to market weight within our regional allocations," the bank said. Goldman said its downgrade of South Korea to "market weight" was a tactical move to help fund a bigger allocation to China and Southeast Asia. The bank said it would consider increasing its exposure to South Korea later in 2022.
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Goldman Sachs has upgraded China and three Southeast Asian stock markets for 2022, and named some stocks on its regional conviction list as it expects the global economic environment to turn more challenging.