A $6-trillion reason to buy into Asian equities: All you need to know

The MSCI Asia Pacific Index's 11% gain this year, however, still lags the global benchmark

If BlackRock CEO Larry Fink is right and global stocks are poised for a “melt up” scenario, several of Asia’s markets may be candidates to help lead that charge.

Most participants are still underinvested in the markets globally, Fink said in an interview to CNBC on Tuesday after his company reported earnings. “We have a risk of a melt up, not a melt down,” he said. The head of the world’s largest investment firm, with $6 trillion of assets under management, said “huge pools of money” is sitting on the sidelines as investors haven’t rushed back into equities even as the stock market bounced back this year.

Fink’s comments come after an already potent rally across multiple benchmark stock indexes this year, with the S&P 500 on the cusp of a record high and the MSCI All-Country World Index about 5 per cent away from its January 2018 peak. A dovish pivot from the Federal Reserve and progress on a US-China trade deal have helped offset global economic growth concerns enough to lift stocks higher thus far this year.

That FOMO theory may have already played out in China and Hong Kong with the Shanghai Composite Index’s propulsive 31 per cent surge this year after a massive plunge in 2018 and the Hang Seng Index’s entrance into a bull market this month.

The MSCI Asia Pacific Index’s 11 per cent gain this year, however, still lags the global benchmark, mainly since Japan (now the third largest stock market in Asia) has the biggest weighting on the gauge. Tokyo stocks have struggled with a lack of investor interest as skepticism remains over the country’s long-term economic health, productivity and corporate earnings. Japan’s Topix index is up 8.6 per cent this year, lagging the Asia Pacific benchmark, while foreign investors have net sold more than $17 billion of Japanese stocks as of April 10, according to EPFR data compiled by Jefferies.

Another developing market in the midst of an election is India. Overseas investors have snapped up net $8.9 billion of stocks this year, the most in emerging Asia outside China, on expectations that Narendra Modi will secure a second term as PM.

As Bloomberg Macro Strategist Mark Cudmore writes, “there’s room for a sharp short-term correction that wouldn’t derail the long-term uptrend.”