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Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Fig. 2: G3 and Asia GDP Growth forecasts
1Q07 (f) 2Q07 (f) 3Q07 (f) 4Q07 (f) 1Q08 (f) 2Q08 (f) 3Q08 (f) 2006 2007f 2008f
US** 0.7 4.0 2.0 2.5 2.7 2.8 2.8 2.9 2.0 2.7
Japan** 3.2 -1.2 3.2 1.9 1.2 3.2 2.9 2.2 2.1 2.1
Eurozone** 2.4 1.4 1.6 2.9 2.3 2.3 2.2 2.9 2.5 2.3
Indonesia 6.0 6.3 6.2 6.3 6.2 6.4 6.6 5.5 6.2 6.5
Malaysia 5.5 5.7 6.3 6.2 5.4 5.7 5.8 5.9 5.9 5.8
Philippines 6.9 7.5 6.5 6.6 6.6 6.8 6.4 5.4 6.9 6.6
Singapore 6.4 8.6 8.1 7.7 6.4 6.7 6.6 7.9 7.3 6.5
Thailand 4.3 4.4 4.6 4.5 4.4 5.5 6.5 5.0 4.3 5.6
China 11.1 11.9 11.3 11.0 10.5 10.3 10.1 10.7 11.5 10.0
Hong Kong 5.6 6.9 6.0 5.3 5.8 5.3 6.1 6.8 6.0 5.6
Taiwan 4.2 5.1 4.4 4.7 4.6 4.6 4.8 4.7 4.6 4.8
Korea 4.0 5.0 4.8 5.0 4.9 4.7 5.0 5.0 4.7 4.9
India* 9.1 9.3 9.1 8.4 8.1 8.0 8.7 9.4 8.6 9.0
Asia ex-J Average 6.3 7.1 6.7 6.6 6.3 6.4 6.7 6.6 6.6 6.5
Ex-China, India 5.2 5.8 5.5 5.5 5.4 5.6 5.9 5.5 5.5 5.7
* India year refers to fiscal years beginning April of calendar year. Quarterly data are
annualised qtr-on-qtr % change for G3, yr-on-yr % change for Asian economies. Shaded
cells indicate higher growth than previous period
Global liquidity crunch
There are arguments that the recent one year rally in global markets was supported by global excess liquidity
and accelerating deal-related activities that drove up valuations. The bears will have a case by eyeballing the
global M2 and industrial production (IP) charts - if M2 does peak from here and IP deteriorates further due to a
global credit crunch, equities markets could see more downside.
Fig. 3: OECD M2 growth
%
9
8
7
6
5
4
3
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Fig. 4: OECD IP Growh
%
8
6
4
2
0
-2
-4
-6
-8
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
However, true empirical evidence suggests that world equity index performance and money supply growth draw
a weak correlation. Instead, it correlates well with global industrial production growth, which concludes that
strong index gains were due to a rise in global economic activity. Furthermore, it is apparent from the P/E band
chart on the next page that world equity valuations are at the lower end of its historical range and have not
been driven to excessive levels due to strong liquidity.
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