Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Our modelling suggests that weekly returns on MSCI Asia ex-Japan index is positively
correlated with a weakening yen and lower bond yields (Fig. 12). Of these two measures,
we are more concerned about the impact of a weakening yen as a proxy for risk
appetite for higher yielding assets. A flight to quality with US lower yields in fact make
Asian equities look attractive in the earnings / bond yield relationship. We would be
more worried about a rising bond yield environment than falling bond yields. Typically,
rising bond yield / equities yield relationships produce negative equity returns 12-month
forward.
Fig. 13: US Bond / Asia Earnings yield
(x)
1.8
Fig. 14: No. of std dev from average vs 12m fwd
performance
3.0
% -150
1.4
2.0
-100
1.0
0.6
0.2
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
1.0
0.0
-1.0
-2.0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
-50
0
50
100
Fig. 15: US Bond / Asia Dividend yield
(x)
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Fig. 16: No. of std dev from average vs 12m fwd
performance
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
%
-150
-100
-50
0
50
100
11