BNP Paribas Asia Strategy - Playing The European Recovery

For all Asian countries, exports to Europe have declined over the past 8-10 years.

August 24, 2013 2:07 IST | India Infoline News Service
Recovery in Europe seems to be gaining momentum. Estimates from BNP Paribas’s economics group and OECD Composite Lead Indicators appear to indicate an economic recovery in Europe. Stronger growth forecasts are predicated on: 1) financial market stress has been kept relatively low for around a year, and 2) notwithstanding continued fiscal tightening across Europe, the severity of the adjustment is easing.

The most Europe-dependent countries
For all Asian countries, exports to Europe have declined over the past 8-10 years. However, for China and India, Europe remains the biggest export destination (or a close second).

And, among them the biggest beneficiaries of potential cyclical Europe recovery
The Korean and Malaysian European export basket is dominated by manufactured goods, which we believe will benefit from any upturn in European growth. Indonesia’s Europe export basket is largely dominated by staples, for which demand is less cyclical and, as such, not very sensitive to the growth upturn. India and China, for whom Europe is the largest export partner, have a diverse export basket which has elements of staples and cyclicals. As such, India and China will benefit from a European recovery, but the benefit will be less than that for Korea and Malaysia. 

Companies that could benefit most: Tata Motors, Prada, Hyundai, Kia, Samsung Elec, HCL Tech and MindTree
In an earlier report, When Europe Recovers (21 May 2013), BNP Paribas’s Japan team had highlighted several stocks as potential beneficiaries of Europe recovery – Seiko Epson, Ricoh, Canon, Nikon, Olympus, Konica Minolta, Nissan (though automakers in general have a weak presence in Europe), Nippon Sheet Glass, Makita Corp and Hitachi High Technologies. In this report, we also screen companies in Asia ex japan which have more than 15% exposure to Europe in terms of revenue and operating earnings, increasing earnings estimate profile and BUY recommendations from our analysts. Apart from these companies with direct exposure to Europe, we also highlight Samsung Heavy as a beneficiary of developed market economic upturn – illustrated by recent orders from the US.

The author is Asia Pacific Strategist, BNP Paribas

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