The big banks still like Asian equities

A number of analysts see outperformance by EMs more broadly, with bets on China among popular calls for 2018

by BLOOMBERG

SINGAPOREAs the 2018 market-strategy notes roll in from banks’ research teams, one call that stands out prominently is further gains in Asian equities, which have already this month hit record highs.

The thinking is that the region’s world-beating economic growth rates will be sufficient to keep up earnings momentum in a year that’s projected to feature a rollback in monetary stimulus by the world’s main central banks.

“We maintain our bullish view into 2018 and expect Asian (and emerging-market [EM]) equities to double in the next two years,” Bank of America Merrill Lynch (BofAML) strategists wrote yesterday, in one of the most bullish takes on the year ahead.

Morgan Stanley, however, is barely in the bullish camp. Asian stocks retreated from last Friday’s record after analysts at the bank downgraded Samsung Electronics Co and Taiwan Semiconductor Manufacturing Co, saying their shares had risen too much.

A number of analysts see outperformance by EMs more broadly, with bets on China among popular calls for 2018 even as that country moves to rein in credit growth. Here’s a selection from recent outlooks:

1) BofaML (Ajay Kapur)

• Asia and EM equities are expected to double in the next two years.

• Earnings of about 20% expected next year and total returns could be around 30%. • New lending boom in the next few years is quite likely for EMs, except China, after previous “famine” in most markets.

• ‘Overweight’ on Japan, South Korea, Taiwan and China ‘Underweight’ on India, Malaysia and the Philippines.

2) UBS group AG (Geoffrey Dennis)

• Emerging markets growth may rise slightly to 4.2% in 2018 from 4% even as global growth slows.

• Strongest rebound in returns seen in staples, information technology, materials and energy sectors, aided by rising commodities prices and lower US dollar.

• Sees accelerated 2018 gross domestic product growth in India at 7.4% and slower growth in China at 6.4%.

3) Credit Suisse group AG (Michael Strobaek)

• Emerging market equities may continue to outperform developed markets amid strong global growth, stabilising China and moderate inflation.

• Small-cap stocks can play catch up in 2018.

• Momentum in emerging market economies will offset Fed’s tightening.

• India may have better growth in 2018 after policy shocks in previous years.

• South Korea, Taiwan should benefit from the global demand, recovery in consumer as well as corporate expenditure.

4) Morgan Stanley (Jonathan Garner)

• 2018 going to be considerably tougher as market is near “euphoric” sentiment.

• Economic growth might be “good” but central banks tightening, China slowdown, elections in EM countries may weigh on equities.

• ‘Overweight’ on China, India, Brazil and cuts Japan to equal-weight and Korea to underweight.

• Cuts semiconductor and hardware stocks to equal-eight and raises energy to overweight. — Bloomberg