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Analyst Blog

As the U.S. and the world at large prepare to deal with President Trump, major Asian economies are sending out encouraging economic signals. Japan’s GDP has recently increased ahead of most expectations. China’s economy is relishing its new found stability. Despite recent developments, South Korea remains a key investment destination while Australia’s economic outlook has improved.

This is why investing in these countries is a prudent option at this point. Adding stocks of companies located in these countries makes for a smart move.

Data from Japan, China Encouraging

The Nikkei rose on Monday on the back of several encouraging economic indicators. According to data released last week, Japan’s GDP increased by 2.2% during the July-September quarter. The country’s economy grew for the third successive quarter following a recovery in exports. Meanwhile, data released on Monday showed that exports had declined 10.3% year-over-year in October. However, exports are still in better shape considering the reverses they had suffered in spring time.

On Monday, China’s benchmark index increased to its highest level in 10 months. Most of the economic reports emanating from the world’s second largest economy recently have been encouraging. Data released last week showed that industrial production has increased by 6.1% on a yearly basis in October.

Additionally, fixed asset investment rose 8.3% over the first ten months of 2016. On Nov 15, Premier Li Keqiang said China will achieve key development goals in 2016, in another sign that the economy was steadying. The only overhang remains a weakening yuan.

South Korea Remains Strong, Australia’s Outlook Improves

At first glance, a political scandal seems to be obscuring South Korea’s economic success. President Park Geun-hye is battling allegations of favoring a close confidante regarding certain financial transactions. Meanwhile, the country’s growth has declined to 2.7% for the third quarter of 2016 on a yearly basis, compared to the previous quarter’s rate of 3.3%. 

The economy expanded by a seasonally adjusted pace of 0.7% compared to the previous quarter’s rate of 0.8%. However, this was higher than first quarter’s growth rate of 0.5% and has exceeded all forecasts, which supports the view that the economy continues to grow at a predictable pace. It seems unlikely that four decades of scorching growth will come to a sudden and unwelcome halt.

Meanwhile, Goldman Sachs (GS - Free Report) has upgraded its outlook for Australia’s economy. The financial major believes that the country’s economy has passed a crucial transition point and is likely to grow at a faster pace even as Australia’s currency strengthens. According to Goldman Sachs, Australia’s GDP will grow by 2.8% next year and by 2.9% in 2018. Further, the Reserve Bank of Australia is expected to raise interest rates during the second half of 2017.

Our Choices

Key Asian economies seem to be in fine fettle and are likely to grow unhindered in the near future. Recently released economic data and related forecasts support such a view conclusively.

Picking stocks of companies located in these countries would make for a smart move. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

POSCO (PKX - Free Report) is one of the largest steel producers in the world on the basis of output and is based in South Korea.

POSCO has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 3% over the last 30 days.

BHP Billiton Ltd. (BHP - Free Report) is one of the world's largest diversified resource companies with operations spanning over several continents and is based in Australia.

BHP Billiton has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 0.9% over the last 30 days.

Nomura Holdings, Inc. (NMR - Free Report) is a leading financial services group in Japan and has worldwide operations, providing a wide range of value-added financial services and competitive products.

Nomura Holdings has a VGM Score of B. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.07, lower than the industry average of 16.83. Its earnings estimate for the current year has improved by 21.9% over the last 30 days. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Momo Inc. (MOMO - Free Report) is the operator of a mobile-based social networking platform primarily in the Peoples Republic of China.

Momo Inc. has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 28.6% over the last 30 days.

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