Buy­ers get picky amid weaker earn­ings es­ti­mates in Asia

New Straits Times - - Business / News -

SIN­GA­PORE: One of the pil­lars sup­port­ing a rally in de­vel­op­ing­na­tion stocks is start­ing to look shaky, at least in some parts of Asia.

Along with ro­bust eco­nomic growth and rel­a­tively low val­u­a­tions, im­prov­ing earn­ings have pushed the re­gion’s shares to lev­els un­seen in al­most a decade.

But Credit Suisse Group AG is sound­ing a note of cau­tion, say­ing steep gains in South Korean in­come pro­jec­tions are mask­ing de­clines in other mar­kets.

While the con­sen­sus earn­ings es­ti­mate for the MSCI Asia exJa­pan In­dex was 7.5 per cent higher since June last year, that re­versed to a one per cent de­cline if South Korean eq­ui­ties were taken out, said the Swiss-based bank in a July 19 note.

One-year for­ward earn­ings per share es­ti­mates for Philip­pine and Malaysian com­pa­nies in the gauge were down 26 and 5.9 per cent, re­spec­tively, in US dol­lar terms over the pe­riod, ac­cord­ing to data com­piled by Bloomberg.

That’s prompt­ing a more selec­tive ap­proach from some in­vestors.

“If we don’t get any up­grades it will be harder for the mar­ket to push higher as it’s no longer cheap,” said Joshua Crabb, head of Asian eq­ui­ties at Old Mu­tual Global In­vestors in Hong Kong.

South Korean and Philip­pine banks could still see some gains, while In­dian and In­done­sian in­fra­struc­ture stocks re­mained at­trac­tive, said Crabb.

The main driver for down­grades in Asia ex-Japan was “ex­pen­sive” In­dian and In­done­sian eq­ui­ties, Credit Suisse strate­gists Sak­thi Siva and Kin Nang Chik wrote in

For­eign funds pulled from In­done­sian shares

in July

the note.

It was un­der­weight on those mar­kets, along with Malaysia and the Philip­pines.

“In­dia just doesn’t have earn­ings power at all,” said Ajay Ka­pur, head of Asia Pa­cific and global emerg­ing mar­ket strat­egy at Bank of Amer­ica Mer­rill Lynch in Hong Kong.

The ra­tio for In­dia’s Sen­sex mea­sure is near the strong­est in nine years at 18.8, and that’s also 24 per cent above the five-year av­er­age. In­done­sia’s ex­ceeds its five-year av­er­age by 6.4 per cent.

For­eign funds have pulled a net US$823 mil­lion (RM3.52 bil­lion) from In­done­sian shares this month, set for the big­gest out­flows since Novem­ber.

The pace of in­vest­ment is slow­ing for some other mar­kets. In­dia lured US$581 mil­lion last month, com­pared with US$2.2 bil­lion of net pur­chases over the pre­vi­ous two months, while Malaysian eq­ui­ties at­tracted just un­der US$200 mil­lion since May, set for the weak­est two months this year.

A lack of earn­ings growth at a time when the world’s big cen­tral banks are look­ing to un­wind stim­u­lus may make it harder for the MSCI Asia-ex Japan In­dex to add to its 27 per cent gain this year.

“Stretched val­u­a­tions for In­dia, In­done­sia and Malaysia may in­vite more cau­tion,” said Jingyi Pan, a mar­ket strategist at IG Asia Pte Ltd, here. “In­vestors are likely to be more guarded with re­gards to these mar­kets un­less earn­ings ex­pec­ta­tions do match up.” Bloomberg

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