4–5
China – The market is cheap and the latest PMI readings
suggest that the government’s recent targeted easing
measures are helping to stabilise growth, in the face of a
slowing property sector. Home prices fell marginally in May,
the first month on month decline since June 2012, as more
developers have started to offer price discounts. Meanwhile,
industrial profits grew 8.9%yoy in May, slowing from the
previous month. More stimulatory measures are possible, in
order to achieve the government’s 7.5% growth target.
Hong Kong – Valuations are slightly expensive and after a
short-lived reprieve, analysts continue to revise their earnings
forecasts lower. We believe that Hong Kong could benefit
from improved investor sentiment should the Chinese growth
outlook improves further but we prefer to see greater clarity
on this front. Loans growth rebounded in May after a sluggish
start to the year. However, given lagging deposit growth, HKD
funding costs are inching up and may pressure bank margins.
On this front, the larger banks could fare better. On balance, we
remain neutral on the market.
India – Valuations are expensive but not excessively so. We
continue to give the Modi-led government the benefit of the
doubt. The recently announced hikes in gasoline and diesel
prices, as well as the increased railway passenger and freight
fares suggest that the new government is serious about
curbing subsidies and the fiscal deficit. Meanwhile, on the
macro front, the Markit PMI inched higher in June and our
economists expect the Indian economy to enter a sweet spot
in the second half of the year.
That said, the risk to our positive stance stems from a poor
monsoon which would revive inflationary pressures. In
addition, should the Modi-led government fail to meet market
expectations in the months ahead, investors may want to move
to protect their gains as the election-related euphoria fades.
ASEAN – The ASEAN markets continue to look expensive, with
the exception of Malaysia which is fairly priced and Singapore,
which remains cheap. Monetary conditions are likely to
become tighter in Malaysia and Philippines. The former could
see rate hikes in the second half of the year as adjustments
in electricity tariffs and gas prices exert upward pressure on
inflation. Meanwhile, Philippines, which is experiencing rising
inflationary pressures and a slowing growth momentum,
moved to raise rates on its Special Deposit Accounts last
month.
Over in Thailand, since the National Council for Peace and
Order has been established post the coup, Thailand’s fiscal
programme has been revitalised and consumer as well as
business confidence has lifted. As such, a modest growth
revival is likely. That said, while things appear to be looking
up, we are cognizant that the military government is only
a temporary solution before the eventual restoration of
democratic governance. Meanwhile, despite the moderately
better economic outlook, earnings continue to be revised
lower.
As for Indonesia, domestic momentum is strong, pushing
the manufacturing PMI to 52.7 in June, the highest since
April 2011. Earnings revisions have also been relatively stable.
However, Indonesia’s current account deficit widened to 3.5%
of GDP in 2Q14, and the trade balance could remain volatile
as imports and activity pick up post elections. This could in
turn increase the vulnerability of the currency should US bond
yields and market volatility head higher. Finally, given the
uncertain election outcome, investors may want to maintain a
relatively cautious stance for now.
The Singapore market is not expensive but the outlook
remains relatively unexciting, with tight labour costs acting as
a constraint on the economy. Notably, industrial production
fell in June on the back of a decline in semiconductor
production. That said, we saw better output from the marine
& offshore, as well as the aerospace segments. As such, we
continue to favour selected industrial companies within
Singapore, whose earnings are likely to be boosted by the
global growth recovery.
Within Asia
3-12 month view
China
Neutral
Hong Kong
Neutral
India
Positive
Korea
Neutral
Taiwan
Positive
ASEAN
Neutral
Source: ANZ. July 2014.
The report is published by ANZ Wealth Asia. All charts and tables are individually sourced. “ANZ analysts” refer to investment professionals within the ANZ CIO Office, ANZ Economics & Markets
Research and ANZ Wealth Asia. For more information, please contact your ANZ Relationship Manager.