The world's major economies appear to have entered a synchronised,
but in all likelihood modest, growth upswing. Expect this to drive
further outperformance by Asian cyclicals, which still have significant
cushion for growth disappointment but little upside for growth
surprise built into valuations. To date, Asian cyclicals have risen only
two-tenths of the average return when regional LEIs have historically
been in recovery mode. Should growth momentum disappoint, either in
scope or duration, cyclicals will clearly lose their most powerful
tailwind.
However, the bet on defensives has also become less
attractive as ASEAN growth prospects have collapsed. Stay long North
Asia over ASEAN and continue to add to cyclicals.
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