Climbing the wall of worry: Gearing up for a strong 4Q. The start of a Fed easing cycle, coupled with cautious investor positioning, points to further strength for Asian equity markets in 4Q. Within Asia ex-Japan, we prefer China, India, Singapore and Hong Kong, and we remain more cautious on Taiwan and Korea. Interim earnings results may provide a catalyst for Japan to catch up. Across the region, we emphasize growth stocks.
- Pan-Asia outlook: Further gains ahead. Despite the risk of a near-term pullback in Asia ex-Japan markets given the swift rebound from their August lows, our strategic case remains positive given conservative investor positioning and benefits from a more accommodative Fed. Japan continues to lag the region, but forthcoming earnings results may support a rebound in 4Q. Within Asia ex-Japan, we are overweight industrials, energy, mining, telcos and steel. For Japan, we highlight areas exposed to Asian growth and stocks with potential for positive earnings surprises.
- Things to watch: earnings, Chinese policies and US macro. Catalysts include 3Q earnings results, China’s 17th National Party Congress, US and EU macro data.
- Performance: Strong gains. In September, our buy list advanced 9.5% and our funding list rose 2.4% resulting in a positive spread of 708 bp in local currency terms. Ytd, our buy basket has outperformed our funding basket by 27.8 pp.
- Our Oct buy list: Matsushita Electric Industrial (6752 JP, B), Suruga Bank (8358 JP, B), Hitachi Construction Machinery (6305 JP, B), Murata Mfg. (6981 JP, B*), China Resources Power (836 HK, B*), Angang Steel (H) (347 HK, B*), New Oriental Education & Technology Group Inc. (ADS) (EDU US, B*), Sun Hung Kai Properties (16 HK, B*), U-Ming Marine (2606 TT, B*), Keppel Corp (KEP SP, B), Reliance Industries (RIL IN, B*), LG Chem (051910 KS, B*)
- Our Oct funding list: Casio Computer (6952 JP, N), Advantest (6857 JP, N), Japan Airlines (9205 JP, N), Sumitomo Bakelite (4203 JP, S), Bank of China (H) (3988 HK, N), iShares FTSE/Xinhua 25 (FXI UN, NC), Netease (NTES US, N), Henderson Land (12 HK, N), Mega Financial Holdings (2886 TT, N), Singapore Press Holdings (SPH SP, S), Honam Petrochemical (011170 KS, S)
Oct STAAG picks (new additions bolded)
Buy list Funding list
6752 JP Matsushita Electric Industrial vs 6952 JP Casio Computer
8358 JP Suruga Bank 6857 JP Advantest
6305 JP Hitachi Construction Machinery 9205 JP Japan Airlines
6981 JP Murata Mfg. 4203 JP Sumitomo Bakelite
836 HK China Resources Power 3988 HK Bank of China (H)
347 HK Angang Steel (H) vs FXI UN iShares FTSE/Xinhua 25
EDU US New Oriental Education & Technology vs NTES US Netease
16 HK Sun Hung Kai Properties vs 12 HK Henderson Land
2606 TT U-Ming Marine vs 2886 TT Mega Financial Holdings
KEP SP Keppel Corp SPH SP Singapore Press Holdings
RIL IN Reliance Industries
051910 KS LG Chem vs 011170 KS Honam Petrochemical
