MUMBAI Chinese and Korean equities have been downgraded to "underweight" from "neutral" and "overweight" respectively by BNP Paribas in its Asia Ex-Japan portfolio, citing a structural slowdown in the former and margin pressures on the latter.
"Since mid-2013 we have recommended investing in North Asia. This call worked in 2H13, but since the beginning of 2014 concerns have emerged over China and over Korea. The only silver lining for China seems to be the relative resilience of its consumers," said BNP Paribas in a report on Wednesday.
China's authorities have a tough balancing act as they try to rein in credit growth, implement structural reform and maintain reasonably high growth, BNP said.
The investment bank also upgraded Indian and Indonesian equities to "overweight" from "underweight" by increasing its positions primarily in rate-sensitive stocks like banks, and India's largest cigarette maker ITC (ITC.NS).
India and Indonesia, previously at risk from severe currency depreciation and liquidity tightening, have recovered in terms of their trade and current accounts, and to a lesser extent in terms of inflation, the BNP report added.
Weak currency and high imports had earlier put a strain on the two nations among "the fragile five" by widening their current-account deficit.
Macquarie also reduced its "overweight" stance on Korean equities and reduced its "underweight" on Indonesia on Tuesday.
Last week, JP Morgan upgraded Indonesia and Philippine shares to "overweight" from "neutral" in its global emerging markets model portfolio, citing a reduced perception of risk due to stability in some currencies and improving current accounts
(Reporting by Abhishek Vishnoi; Editing by Sunil Nair)
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