Citigroup Inc, the world's largest financial services company, recommended investors buy shares in South Korea and Taiwan as stock prices already reflect concerns that efforts to slow economic growth in China may reduce exporters' overseas sales.
South Korea's Kospi index, which had its biggest weekly drop in a year last week, may rise to 1,025 this year, 18 percent higher than yesterday's close, analyst Daniel Yoo said in a research report.
Citigroup favors telecommunication firms and banks because of cheaper valuations and higher corporate profits at companies that derive most of their earnings domestically, Yoo said.
Any further declines in the TAIEX, which had its worst week in five last week, present an "opportunity to accumulate in advance of a likely final rally in late second quarter or early third quarter" as export demand will remain strong and interest rate concerns are "overblown," analyst Kent W.B. Chan said in the report.
China ordered banks to stop lending to some industries, halted the construction of a US$1.3 billion steel mill and raised the amount of money companies must put up for steel, cement, aluminum and real estate projects.
China was South Korea's largest export market last year and is the biggest destination for Taiwan's goods.
The Morgan Stanley Capital International Asia-Pacific Index last week shed 4.3 percent, the biggest drop since the five days to Oct. 24.
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