Ian Chua, Reuters
Hong Kong: Foreign investors are spending big again to buy Asian stocks, helping drive markets such as South Korea to fresh highs and boosting the outlook for markets in the region.
A sharp late February sell-off has become all but a distant memory with confidence back and investors looking to Asia, home to booming China and India, for juicier returns especially as the U.S. economy loses steam.
The world’s largest economy is forecast to have grown at an annual pace of 1.8% in the first quarter of 2007, down from 2.5% the previous quarter and compared with China’s blistering annual growth of 11.1% in the first quarter.
“There is a strong belief that Asia is now able to sustain growth on its own even if the U.S. did slow down, and therefore commensurate with that, you will see more long-term money coming in,” said Anthony Muh, executive director at AllianceTrust Asset Management.
Investors are also lured to the region by faster corporate earnings growth.
Baring Asset Management’s head of Asian multi-asset investments, Khiem Do, expects 13% earnings per share (EPS) growth in Asia for 2007, compared with 5% to 8% EPS growth for the United States.
Foreign investors have been net buyers of Asian stocks in the last five weeks and have injected $10.4 billion (Rs42,608 crore) so far this year into six emerging Asian markets including India, South Korea and the Philippines, nearing last year’s total net buying of $17.2 billion, figures from Nomura showed.
Most of the six markets, with the exception of India, have fully recovered from the global sell-off earlier in the year when foreign outflows totalled $4.4 billion in the three weeks ended 16 March.
But many Asian stocks are no longer cheap, and attractive buys are harder to find.
Emerging Asia trades at 13.2 times forward earnings, compared with 14.3 times for global stocks, 15.1 times for U.S. stocks and 12.9 times for European stocks, figures from Barings showed.
Of the larger, more developed Asian markets, Japan is trading at a forward PE of about 17.5, Hong Kong at 16.2 and Singapore at 17.
“From a valuation perspective, there is very little left. It’s very much just making sure the companies that you hold are showing sufficient growth to justify those valuations,” Muh said.
“We’re nearing the mature end of the bull market so we have to be a little bit more cautious. But the danger of getting out of the markets too early is that markets could go up a lot more.”
Domestic themes such as consumption, financial services and infrastructure have and will remain hot given robust economic growth prospects in Asia, market players say.
“The consumption theme is going to last for a while and the infrastructure theme is also good,” said Barings’ Do.
AllianceTrust’s Muh likes stocks such as apparel maker China Ting Group Holdings Ltd, port operator China Merchants Holdings (International) Co. Ltd and Singapore conglomerate Keppel Corp.
Citigroup has buy calls for Hong Kong lender Hang Seng Bank Ltd, Singapore Telecommunications Ltd, Telekom Malaysia Bhd, Indonesion plantation firm Astra Agro Lestari Tbk PT, Taiwan’s Chunghwa Telecom Co. Ltd and South Korean cellular carrier LG Telecom Ltd.
“Domestic sectors continue to benefit from higher margins than exporters, and with much less margin risk,” said Markus Rosgen, Citigroup regional head of equity strategy.
MSCI’s measure of Asia Pacific stocks excluding Japan hit a record high on 18 April and has fully recovered from a near 10% drop from 26 February to 6 March, when a slump in Chinese mainland stocks prompted a worldwide rout.
South Korea, which has the largest foreign inflow this year among the six emerging Asian markets tracked by Nomura, hit a peak on 25 April, while the Philippines reached 10-year highs on 23 April thanks to stronger foreign inflows.
“Essentially, the benign economic environment of solid global growth and low inflation is the key driving force behind the favourable liquidity environment,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney.