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Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Most Asian economies are also relying less on US exports since 2000, except China. But
China's exports to US are only 1% higher than in 2001.
In terms of market cap contribution, tech and electronics are the biggest export items.
The chart in the previous page shows the contribution of these two categories in the
stock market.
Valuation
Our valuation model ranks the following countries on forecast 12-month returns (see
appendix for our Composite Valuation Score). Essentially, the model back-tests six valuation
indicators, and use only those with better predictive power. According to this model,
Indonesia, Taiwan and Malaysia should generate higher returns than the rest of the
markets.
4Q seasonality
The fourth quarter has always been a good quarter for Asian equities (See "Fourth
quarter dash", Economics - Markets-Strategy, September 15, 2006") . In particular,
Hong Kong and Singapore have traditionally been Asia’s top performing markets.
Fig. 26: 12m fwd return – valuation model forecast
Fig. 27: Avg fourth quarter returns since 1988
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Korea
China 'H'
Hong Kong
India
2008 GDP growth acceleration
AXJ
Thailand
Singapore
Taiwan
Indonesia
Malaysia
Going forward into 2008, accelerating GDP growth can be seen in Thailand and India, and deceleration in
China, Singapore and Hong Kong. The deceleration is from a higher 2007 base where growth has been very
strong.
%
8
7
6
5
4
3
2
1
0
HK
Korea
Singapore
Indonesia
Malaysia
Asia ex-Japan
India
Thailand
Taiwan
H-shares
Fig. 28: GDP growth
% point
2007 2008 Change
China 11.5 10 -1.5
Singapore 7.7 6.5 -1.2
Hong Kong 6 5.6 -0.4
Malaysia 5.9 5.8 -0.1
Korea 4.7 4.9 0.2
Taiwan 4.6 4.8 0.2
Indonesia 6.2 6.5 0.3
India 8.6 9 0.4
Thailand 4.3 5.6 1.3
Fig. 29: Earnings growth
% point
2007 2008 Change
Indonesia 41.0 18.0 -23.0
Taiwan 32.3 16.1 -16.2
Hong Kong 29.0 14.0 -15.0
Malaysia 27.0 16.0 -11.0
China 22.0 22.0 0.0
Korea 12.1 14.9 2.8
Singapore 15.0 21.0 6.0
India 9.9 18.5 8.6
Thailand -3.0 11.9 14.9
Philippines 0.1 15.9 15.7
IBES consensus forecasts used for Korea, Taiwan, India
and Philippines. All others are DBSV forecasts
15