Asian equities are expected to rise by 10-15% in 2012, with a year-end target of 527 for the MSCI Asia ex-Japan Index, representing an upside of 10-15%, according to Credit Suisse.
The firm’s Asian Equity Strategy report forecasts slowing inflation and monetary easing, with stocks in China, Korea, Hong Kong and Australia slated to do particularly well in the improved economic environment. Basic materials, financials, energy and real estate have been identified as the most attractive sectors.
The report also notes a -0.89 correlation between Euribor spreads – the difference between the euro interbank offered rate and overnight index swaps – and the MSCI Asia ex-Japan Index. This indicates a strong correlation between increases in European banks’ cost of short-term funding and declines for Asian equities.
Report author Sakthi Siva, global emerging markets and Asia Pacific strategist, Credit Suisse, suggested that consumer price index (CPI) gains had peaked across global emerging markets in June, and that they are expected to slow further in the next few months. Central banks in Indonesia and Australia have already started cutting rates, while China has been reducing the reserve ratio requirement for its banks – a move that has previously been associated with strong gains for Chinese equities.
Siva also identified opportunities in stocks where the absolute price to book ratio is at the lows of 2008 or 2009 and which trade at a discount, according to Credit Suisse’s price to book versus return on equity valuation model. Stocks in this category include China Mobile, Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Rio Tinto. The Chinese, Korean, Hong Kong and Australian markets were identified as undervalued, with Korea and China cited as particularly lucrative as a less ‘crowded’ market than India or other Southeast Asian nations.
Asian equities have experienced two pronounced spikes in volume in 2011, in March and August, at US$2.23 billion and US$1.8 billion respectively. However, since August they have declined to US$1.32 billion in November 2011, according to figures provided by Thomson Reuters.