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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Looking for a break, not a breakdown
It’s not all doom and gloom – yet stocks are much cheaper
�� By driving equity valuations to new post-GFC lows, August’s correction has
ultimately improved the attractiveness of Asia ex-Japan stocks, in our view.
We don’t expect a V-shaped market recovery but from here we would be
selective buyers of beta where genuine value propositions are identifiable.
�� We see the six-month balance of market risks as being to the upside. Firmer
Asian equity performance and a return to cyclical/higher-beta leadership into
end-year would come with incremental improvements in both the China and
US fundamental outlooks. Europe remains the key potential macro spoiler, in
our view; and our concern about yet-uncontained risks there is reflected in
generally smaller recommended positions vs the Asia ex-Japan benchmark.
Short positions + sideline cash could tip the balance higher
�� Already-conservative Asia ex-Japan consensus EPS forecasts (i.e. for 13%
growth in 2011) reduce risks of a substantial region-wide earnings downgrade
cycle. And as noted, inexpensive equity valuations (e.g. MSCI Asia ex-Japan
Index at roughly 10.6x forward PER – a 14% discount to the long-term
average) render capital preservation strategies more cumbersome than
prudent.
�� Rather, large outstanding short positions in Asia sustain the possibility of a
squeeze-driven rally in the weeks ahead; and high cash positions may force
relative-return managers to chase benchmarks (and beta) higher as markets
regain their footing amid gradually improving US and Chinese data.
Avoiding risk may be the riskiest stance of all
�� With this, investors holding too much defensive exposure run the risk of
underperforming into year-end. We recommend Underweight positions in the
Utilities, Staples and Health Care sectors. We upgrade Telcos to Neutral from
Underweight, however – largely at the expense of Tech – to capture their
generally strong and comparatively certain dividend yield.
�� With gold’s 24% eight-week surge to roughly US$1,845/oz pointing to
massive central bank accommodation probably irrespective of what Chairman
Bernanke says Friday at the Fed’s annual Jackson Hole retreat, we see the
current global risk episode as ultimately inflationary – not deflationary – and
thus look to capture eventual balance-sheet reflation via Overweights in the
now-downbeaten Energy, Materials and Financials sectors.
�� But with Southeast Asia having served as Emerging Asia’s ‘safe haven’ region
amid recent volatility – and North Asia having suffered the bulk of the selling –
we would look for opportunities to fade ASEAN’s gains in the weeks ahead to
fund opportunistic positions in North Asia. Our recommended weightings are
+3.0ppt Overweight North Asia in aggregate vs -2.0ppts Underweight ASEAN
(we have also reduced our Underweight in India by half, to -1.0ppt).
�� Specifically, we upgrade inexpensive, underowned China to Overweight (from
Neutral) and Hong Kong to Neutral from Underweight. We retain reduced
Overweights in Korea and Taiwan
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Looking for a break, not a breakdown
It’s not all doom and gloom – yet stocks are much cheaper
�� By driving equity valuations to new post-GFC lows, August’s correction has
ultimately improved the attractiveness of Asia ex-Japan stocks, in our view.
We don’t expect a V-shaped market recovery but from here we would be
selective buyers of beta where genuine value propositions are identifiable.
�� We see the six-month balance of market risks as being to the upside. Firmer
Asian equity performance and a return to cyclical/higher-beta leadership into
end-year would come with incremental improvements in both the China and
US fundamental outlooks. Europe remains the key potential macro spoiler, in
our view; and our concern about yet-uncontained risks there is reflected in
generally smaller recommended positions vs the Asia ex-Japan benchmark.
Short positions + sideline cash could tip the balance higher
�� Already-conservative Asia ex-Japan consensus EPS forecasts (i.e. for 13%
growth in 2011) reduce risks of a substantial region-wide earnings downgrade
cycle. And as noted, inexpensive equity valuations (e.g. MSCI Asia ex-Japan
Index at roughly 10.6x forward PER – a 14% discount to the long-term
average) render capital preservation strategies more cumbersome than
prudent.
�� Rather, large outstanding short positions in Asia sustain the possibility of a
squeeze-driven rally in the weeks ahead; and high cash positions may force
relative-return managers to chase benchmarks (and beta) higher as markets
regain their footing amid gradually improving US and Chinese data.
Avoiding risk may be the riskiest stance of all
�� With this, investors holding too much defensive exposure run the risk of
underperforming into year-end. We recommend Underweight positions in the
Utilities, Staples and Health Care sectors. We upgrade Telcos to Neutral from
Underweight, however – largely at the expense of Tech – to capture their
generally strong and comparatively certain dividend yield.
�� With gold’s 24% eight-week surge to roughly US$1,845/oz pointing to
massive central bank accommodation probably irrespective of what Chairman
Bernanke says Friday at the Fed’s annual Jackson Hole retreat, we see the
current global risk episode as ultimately inflationary – not deflationary – and
thus look to capture eventual balance-sheet reflation via Overweights in the
now-downbeaten Energy, Materials and Financials sectors.
�� But with Southeast Asia having served as Emerging Asia’s ‘safe haven’ region
amid recent volatility – and North Asia having suffered the bulk of the selling –
we would look for opportunities to fade ASEAN’s gains in the weeks ahead to
fund opportunistic positions in North Asia. Our recommended weightings are
+3.0ppt Overweight North Asia in aggregate vs -2.0ppts Underweight ASEAN
(we have also reduced our Underweight in India by half, to -1.0ppt).
�� Specifically, we upgrade inexpensive, underowned China to Overweight (from
Neutral) and Hong Kong to Neutral from Underweight. We retain reduced
Overweights in Korea and Taiwan
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