Morgan Stanley (again), My Fav Strategists

Asia/Pacific Equity Strategy

Start Buying Asia-Pac: +10% by Year-End
August 21, 2007

By Malcolm Wood, Ryan Tsai, Corey Ng

We see six reasons to buy Asia-Pac: This has been the largest bull market correction in 20 years, valuations are moderately attractive, earnings momentum and fundamentals are positive, the fallout from the US credit squeeze should be limited, Asia liquidity conditions are still strong, and sentiment has turned pessimistic. We have also raised our year-end index target by 3%, to 480.

Estimating the US Fallout: Impact on Asia Should Be Limited. The credit squeeze should keep growth sluggish in the US. The squeeze should deepen the housing downturn, slow job growth and lift the saving rate. Asia has four offsets to mitigate the US impact: re-directing exports, and gaining export market share; strong economic momentum and fundamentals; the liquidity boom; and potential political stimulus. We would avoid Asia stocks with large US exposure.

Country Strategy - Overweight China, Hong Kong, Malaysia and Singapore. In a context of slowing G7 growth and Fed rate cuts, our preferred markets are China and Hong Kong. In China we see significant upside earnings potential, while Hong Kong should benefit from lower US rates and China capital inflows. We raised Thailand to a neutral weight, given its progress toward elections. We reduced Australia, where liquidity is tight, and valuation unattractive. India stays underweight despite an improving rate outlook, given political uncertainty, high valuation and poor earnings revisions. In our model portfolio we overweight banks, insurers, consumer, property and telcos.

Comments

Bee Hong said…
Hi Dali,
Regarding Morgan Stanley's statement: " Asia has four offsets to mitigate the US impact: re-directing exports, and gaining export market share; strong economic momentum and fundamentals; the liquidity boom; and potential political stimulus. We would avoid Asia stocks with large US exposure."

I wonder where else can the 4 mentioned countries channel their exports? since US is probably the biggest goods importer of these 4 countries.

About "..and gaining export market share"... I'm a bit confuse here. China and Malaysia are direct competitors, just like HK and S'pore are both direct competitors. Can we assume that one country gain in export market share is the lost of the other country?

Please shed some lights as my knowledge in macro economy is limited. Thanks!