Valuations are still supportive of Chinese equities. This year’s uptick in PMIs might continue for longer than in previous years given there has been a very gradual return to accommodative monetary and fiscal policies. SOE reform a positive catalyst.
Is it time to overweight India?
We don’t think the time is right yet for us to change our neutral weighting. Valuations still look high and mutual funds are still very overweight the Indian stock market, in our view. Also, there remains a risk of higher, not lower, interest rates. A positive is that some reforms have been put in place, but the impact on corporate earnings remains uncertain in terms of magnitude and timing.
Is ASEAN too expensive now?
Given the high ROEs, Indonesian valuations are not stretched. But Thailand does offer a recovery in earnings in 2H and lower valuations at the time. We cut Malaysia to underweight on the back of rising earnings risk, high valuations and the risk of rising rates.
How do Taiwan and Korea compare now?
We downgraded Taiwan to neutral in early July (see ‘Asia Equity Insights Quarterly’, 8 July 2014). The earnings upgrade cycle has been a key driver of Taiwan equities this year, but the cycle is weakening. In Korea, earnings
expectations have declined, at last. Monetary policy has become more supportive to local equities. As such, we move Korea to neutral (from underweight).