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Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Index Target
Most market indices had surpassed our previous Dec 07 target, despite a mid-quarter
correction. We are upgrading our index targets to reflect our still positive outlook for
Asian markets. We are looking for volatility in the next one month before a year
end rally in November. Event risk surrounding the 3rd quarter results season is quite
high in our view, but markets should not find another bottom as sentiments have
improved after the stock market recovery. Our recommendation is to accumulate
on weak days in order to position for a year end rally.
Chinese retail QDII scheme and 17th National Congress should provide positive
sentiments in Hong Kong in the near term, and we believe our index target
for HSI and H-share for 2008 should have more upside with 2008 being the
China’s Olympics year. Elsewhere sentiments should remain positive as elections
in Thailand, Malaysia, Korea, and Taiwan are occurring by end of this year or
by early next year. Singapore should see 2008 as another construction boom
year and tourist arrivals for the Formula One event, new tourist attraction
the Singapore Flyer; and visitors and training teams for Olympics are transiting
here while enroute to Beijing. Indonesia should also be benefiting from rising
commodity prices and India’s domestic demand continue to soar. Near term
risks we are seeing volatility from subprime concerns but complacency should
see indices surging by early next year before we see another bull market
correction.
Our preference in terms of market ranking are Hong Kong / China, Thailand,
Singapore, Malaysia, India, indonesia, Korea and Taiwan.
Fig. 52: 11-Sep 12-month
Sensitivity
% return
Current Earnings Current Based on Index based on P/E Re-rating Target*
Till Full
Level Growth PE SD Growth to 0 SD to 0.5 SD to 1 SD Dec 07 2008 31-Dec 2008
Hong Kong 23952 13.6 -0.2 27209 24813 26989 29164 26100 28000 9.0 7.3
H-share 14333 22.0 2.5 17486 8191 9440 10690 15800 17000 10.2 7.6
Thailand 801 11.9 0.3 896 547 928 1308 850 1040 6.1 22.4
Singapore 3495 22.0 0.3 4264 3200 3721 4242 3700 4200 5.9 13.5
Malaysia 1286 16.0 0.6 1492 994 1253 1512 1350 1570 5.0 16.3
India 15542 18.5 1.0 18417 12599 14145 15692 16400 18500 5.5 12.8
Indonesia 2211 17.7 0.9 2602 1297 1816 2334 2300 2600 4.0 13.0
Korea 1847 12.1 0.7 2071 1083 1615 2147 1920 2150 4.0 12.0
Taiwan 9003 16.1 0.1 10453 8760 10895 13031 9400 11000 4.4 17.0
*Target index levels derived from top down assumptions may vary from the bottom-up targets specified in the indvidual
country assessments
Note: Sources for all charts and tables are Datastream, CEIC or Bloomberg. Earnings consensus data
are from IBES Aggregate via Datastream.
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