Still constructive on Asian equities

Having corrected slightly after rallying for much of the year, Asian equities still retain their competitive edge.

MSCI Asia ex-Japan has remained at the bottom of a 620-630 range after peaking at 631 on June 26. Year-to-date, the index has already risen by more than 20%. We expect a modest rally over the next 12 months, with our 12-month target for MSCI Asia ex-Japan at 660 – a rise of about 6.5%.

Our constructive view of Asia equities stems from a supportive regional economic landscape and reasonable valuations. Asia is likely to be helped by strong fundamentals, ongoing reforms, regional trade cooperation, and robust consumption.

The cyclical recovery, positive export growth, stable commodity prices and better corporate profitability from higher producer prices also support earnings in the region.

“Our constructive view on Asian equities stems from a supportive regional economic landscape and reasonable valuations.”

At the same time, valuations are competitive compared to other indices. MSCI Asia ex-Japan currently has a 12-month forward P/E ratio of 13.2, lower than that of S&P (17.5), and MSCI World (16.6).

Japanese equities have also dipped slightly, despite JPY weakness. At the time of writing, MSCI Japan have come down to around 956, after peaking at 966 on June 29.

We believe this has stemmed from a global equity correction, rather than from local factors. Continued central bank divergence should, however, help Japanese equities in coming months, with the Bank of Japan’s reluctance to end quantitative easing holding down the JPY.



Source: Bloomberg Finance L P, Deutsche Bank Wealth Management. Data as of July 12, 2017.  

Tuan Huynh

Source: CIO Bulletin, July 14, 2017