Asia ex-Japan Strategy
ASIA
Let the birds fly south Stronger US recovery needn’t be a threat to Asia As the weather gets colder, many birds fly south to more hospitable climes.
But with winter fast approaching in the northern hemisphere, we’ve been watching for an Asian investor migration northward – from the generally more fully valued markets of South and Southeast Asia, toward the easier valuations and more conservative earnings forecasts in Taiwan and Korea (Figures 9–10, below). With the Taiex and KOSPI outperforming thus far in Q4 (up 11.6% and 5.5% respectively QTD, vs. 3.9% for the MSCI Asia exJapan Index), such a move hardly seems for the birds. Washington has lately shed some of its more anti-growth policy inclinations,
fuelling an upgrade this week to our full-year 2011 US GDP forecast (to 3.5% from 2.6% previously), with contributions from both business spending and private consumption. Our end-2011 forecast for 10-year US Treasury yields also rises – to 3.75%, from 3.0% previously – even as our expectation for stay-put Fed short-term policy rates through 2011 goes unchanged (implying a substantial Treasury curve steepening in the year ahead). Asian investors needn’t view this as an imminent threat. Far from fearing a
zero-sum abandonment of Emerging Market equities in favour of the US and other Developed Markets, we see continued global demand recovery – including in the US – as the best prospect for the entire equity asset class, including in Asia. If there is an asset class that looks “zero-sum” vulnerable to these developments, we’d suggest Fixed Income fits the bill. Asian stocks typically rally with their US cousins, and Asia ex-Japan PERs more often than not are positively correlated with Treasury yields (Figure 1).
Asia’s external and capex plays catch earnings tailwind As the US data firms and US 2011 recovery prospects enjoy fuller support
from both fiscal policy and monetary accommodation (on which the Fed this week remained pointedly steadfast), our conviction rises that Asia’s more USfocused, trade-intensive, and Electronics- and Capital Goods-intensive equity markets stand to benefit more. This is already reflecting in consensus earnings data, where on a sector
basis, we note the most robust 2011 EPS upgrades since November are occurring in externally-driven and business spending-driven sectors such as Semiconductors, Capital Goods, and Transport, while EPS estimates in domestic sectors such as Retail and F&B languish or decline (Figure 5).
Room for northward portfolio rotation Michael Kurtz +852 3922 1403 Yiran Zhong +852 3922 4073 John Woods +852 3922 4636 Shirley Zhao, CFA +86 21 2412 9026
Survey-based consensus portfolio-positioning data suggest that long-only
[email protected] [email protected] [email protected] [email protected]
16 December 2010
investors remain Underweight Korea and Taiwan by a combined total of 4.5 ppts relative to the Asia ex-Japan benchmark – vs. Overweights among the TIPs, for example, totalling 4.6ppt (Figure 6). Indeed, a change in investor buying interest already appears to be afoot:
Foreign net-buying/selling data for the six Asia ex-Japan markets that publish data show substantial shifts in emphasis since November from India- and ASEAN-oriented buying toward Korea and Taiwan (Figure 7).
Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com.au/disclosures.
Macquarie Research
Asia ex-Japan Strategy
Stronger US recovery needn’t be a threat to Asia We are not convinced by the argument that a US recovery or a backing-up in US Treasury yields necessarily implies zero-sum downside for Asian markets. The ten-year chart below suggests at generally positive relationship between US Treasury yields and Asia ex-Japan equity PER multiples, for example:
Fig 1 MSCI Asia ex. Japan 12-month Forward PER vs. 10-year US Treasury Yield 6.5
18
6.0
17
5.5
16 15
5.0
14
4.5
13 4.0
12
3.5
11
10-yr US Treasury Yield (%, LHS)
Nov-10
May-10
Nov-09
May-09
Nov-08
May-08
Nov-07
May-07
Nov-06
May-06
Nov-05
Nov-04
Nov-02
Nov-01
May-05
8 May-04
2.0 Nov-03
9 May-03
2.5 May-02
10
May-01
3.0
MSCI Asia ex-Japan 12-mo Fw d PER (RHS)
Source: Macquarie Research, December 2010
Nor do we find convincing the argument that US stocks offer substantial value relative to “overbought” Asian equities. In fact, on a five-year average, the differential between S&P 500 and MSCI Asia ex-Japan forward PERs is nearly in line with its mean:
Fig 2 PER multiple differential: S&P 500 vs. MSCI Asia ex-Japan 5
4
3
2
1
0
-1
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
-2
Source: Datastream, Macquarie Research, December 2010
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Macquarie Research
Asia ex-Japan Strategy
We think the eventual threat to the current Asian market rally likely would only come with a sustained US dollar inflection driven by genuine US monetary tightening (i.e. via actual Fed balance sheet contraction and higher US$ interest rates), which could mark a true longer-term inflection point on the dollar and set it on a path of sustained appreciation. But looking through into 2011, our still-benign US monetary policy expectations – reinforced by the Fed’s unchanged policy language this week – suggest it should still be several quarters before markets even begin having to discount that development. Rather, in the meantime, the combination of faster-than-Fed interest rate tightening in Asia (which will further widen Asian FX-favorable policy interest rate differentials) and the backdrop of a politically managed RMB appreciation vs. the US dollar should keep Asian currencies firm over the medium term – and thus act as a continued incentive for Asia-bound portfolio flows.
Asia’s external and capex plays catching the tailwind One area where stronger US prospects are already beginning to reveal themselves is in US firms’ reported capital spending intentions, as reflected in the Philadelphia Fed’s monthly survey/diffusion index (Figure 3). Historically, some 35–40% of US business spending goes to IT and Electronic Hardware & Equipment – suggesting a potential lift for Asian Electronics and Capital Goods producers’ export earnings as the US recovery gathers pace in 2011:
Fig 3 Philadelphia Fed diffusion index: US 6-month capital spending intentions 30 25 20 15 10 5 0 -5 -10 -15
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
-20
Source: Bloomberg, Macquarie Research, December 2010
Of the five largest Asia ex-Japan Index constituent countries (China, Korea, Taiwan, India and Hong Kong), we note that Korea and Taiwan demonstrate the largest trade correlation with US capital expenditure, whereas HK/China’s exports to the US correlate more strongly with US consumer spending (and India simply remains much less export-intense overall): Korean exports to the US have a correlation of 0.73 with US capital goods imports, stronger than
their 0.62 correlation with US consumer goods imports. Taiwanese exports to the US have a correlation of 0.86 with US capital goods imports, also
stronger than their 0.80 correlation with US consumer goods imports. Hong Kong/Chinese exports to the US have a correlation of 0.66 with US capital goods imports,
substantially below their 0.83 correlation with US consumer goods imports. India stands out as substantially less export-driven overall, with the region’s lowest export/GDP
ratio by far – a critical defensive quality during periods of weak global growth, but arguably a comparative liability as global demand revives.
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Macquarie Research
Fig 4
Asia ex-Japan Strategy
Asia ex-Japan: Exports as % GDP* % of GDP India Indonesia
Philippines China Korea Taiwan Thailand Malaysia Singapore 25
50
75
100
125
150
175
200
*As of end 2008 Source: ADB, Macquarie Research, October 2010
Strengthening external-demand prospects are beginning to materialize in marked sector-level differences in recent Asia ex-Japan consensus earnings revisions, with the most robust 2011 EPS upgrades since November among MSCI Asia ex-Japan constituents occurring among externallydriven and business spending-driven sectors such as Semiconductors, Capital Goods, and Transport, while EPS estimates in domestic sectors such as Retail and F&B languish or decline: Fig 5 MSCI Asia ex-Japan: 2011 earnings revisions by selected sector (Oct. 29 = 100) 125 120 115 110 105 100
Semiconductors
Transpt
Cap Gds
Fd/Bev/Tob
Household & Pers Prod
Retailing
10-Dec-10
08-Dec-10
06-Dec-10
04-Dec-10
02-Dec-10
30-Nov-10
28-Nov-10
26-Nov-10
24-Nov-10
22-Nov-10
20-Nov-10
18-Nov-10
16-Nov-10
14-Nov-10
12-Nov-10
10-Nov-10
08-Nov-10
06-Nov-10
04-Nov-10
02-Nov-10
31-Oct-10
29-Oct-10
95
Source: Datastream, Macquarie Research, December 2010
Room for northward portfolio rotation The most recent survey of institutional investor portfolio positioning by EmergingPortfolio Fund Research (EPFR) suggests that substantial consensus Underweights (totalling 4.5 ppt) persist in Korea (-2.4 ppt) and Taiwan (-2.1 ppt). By contrast, and coincidentally, the TIPs markets show a similar-magnitude consensus Overweight (totalling 4.6 ppt) – namely Thailand (+2.3 ppt), Indonesia (+1.8 ppt) and the Philippines (+0.5 ppt).
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Macquarie Research
Asia ex-Japan Strategy
Within North Asia, the EPFR survey also suggests that investors are substantially Overweight Hong Kong/China – reflecting, we think, the consensus appreciation for the equity-favourable liquidity impact of Hong Kong’s US dollar peg during a period of sustained ultra-loose US monetary policy. (However, we suspect that this Overweight is substantially concentrated among MSCI Hong Kong names, rather than China H-shares.)
Fig 6 Consensus Asia ex-Japan investor positioning vs. benchmark MSCI Abs Weight (%) HK/China India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Total
Consensus Abs Weight (%)
36.9 11.6 3.4 18.8 4.1 0.7 7.1 15.1 2.4 100.0
Rel Weight (%) 4.4 -2.7 1.8 -2.4 -1.5 0.5 -0.4 -2.1 2.3 0.0
41.3 8.9 5.2 16.4 2.6 1.3 6.7 12.9 4.7 100.0
Source: EmergingPortfolio Fund Research, Macquarie Research, December 2010
There is evidence that some Northeasterly portfolio rotation may already be getting underway: Among the six Asia ex-Japan local stock exchanges that provide data on foreign net-buying/selling (i.e. Taiwan, Korea, India, Thailand, Indonesia and the Philippines), we note both: 1) a substantial decline since late November in India’s share of total Asia-bound flows – to just 14% of the latest fourweek sum, vs. roughly 50% during September–October – and 2) a dip to net-selling of the TIPs in aggregate in November (although this has shifted back into net-buying thus far in December).
Fig 7 Country share of four-week aggregate foreign net-buying of Asian* local stocks 70% 60% 50% 40% 30% 20% 10% 0% -10%
Taiwan
Korea
India
09-Dec-10
02-Dec-10
25-Nov-10
18-Nov-10
11-Nov-10
04-Nov-10
28-Oct-10
21-Oct-10
14-Oct-10
07-Oct-10
30-Sep-10
23-Sep-10
16-Sep-10
09-Sep-10
-20%
TIP
Source: Bloomberg, Macquarie Research, December 2010 *Data available only for Taiwan, Korea, India, Thailand, Indonesia and the Philippines
Although the Hong Kong Stock Exchange unfortunately does not report similar high-frequency foreign net buying/selling data, we do note that China-dedicated country fund net-subscription data as reported by EPFR shows a deceleration from US$1.1bn in mid-October to US$368m as of last week:
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Macquarie Research
Asia ex-Japan Strategy
Fig 8 China-dedicated country fund net subscriptions (four-week rolling sum, US$m) 1200 1000 800 600 400 200 0 -200
01-Sep-10
08-Sep-10
15-Sep-10
22-Sep-10
29-Sep-10
06-Oct-10
13-Oct-10
20-Oct-10
27-Oct-10
03-Nov-10
10-Nov-10
17-Nov-10
24-Nov-10
01-Dec-10
08-Dec-10
-400
Source: EmergingPortfolio Fund Research, Macquarie Research, December 2010
16 December 2010
6
Asia ex. Japan Valuation (post-2001 averages) and EPS revision Consensus 12-mo. Forward PER
Asia Ex. Japan
Curr. Prem/Disc Valu L-term vs. L-term Standard e Avg. Avg. Deviation 12.5 12.3 1.4% 0.1
By Country China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand
12.2 16.7 16.7 14.5 9.7 14.8 15.5 14.1 12.6 12.4
12.9 15.9 14.1 9.7 9.2 14.1 13.9 14.6 14.4 10.4
-5.0% 5.7% 18.3% 48.9% 6.0% 4.7% 11.8% -3.8% -12.0% 19.7%
4.0 18.0 32.0 49.0 63.0 77.0 91.0 105.0 119.0 133.0
By Sector Energy Materials Cap Gds Transport Auto & Compo Retailing Food/Bevg./Tobacco Banks Insurance Real Estate Software & Services Tech Hardware Telecom Utilities
11.2 10.8 12.8 11.8 10.1 18.0 15.1 11.2 18.4 14.7 20.9 12.2 12.0 14.6
9.6 9.5 13.9 13.7 8.7 14.5 13.2 11.8 17.5 15.7 20.2 13.4 12.9 12.3
16.4% 14.4% -7.8% -14.0% 16.2% 24.3% 14.6% -5.2% 5.1% -6.3% 3.7% -9.4% -6.9% 19.0%
2.3 2.0 2.3 5.6 2.0 3.4 2.4 1.5 4.5 2.7 3.9 4.4 2.7 2.4
Consensus EPS Growth
2010 EPS
2011 EPS
2009A 22.5%
2010E 38.9%
2011E 12.9%
PBV ROE Prem/Dis c vs. LCurr. 124-wk 8-wk 4-wk 8-wk Curr. L-term term Standard mo. L-term 2012E Revision Revision Revision Revision Value Avg. Avg. Deviation Trailing Avg. 13.6% 0.3% -1.9% -0.3% -0.5% 2.1 2.0 8.1% 0.5 13.3% 12.7%
16.2% -2.9% 40% 8.3% 59.7% -20.1% 15.2% -10.4% 51.6% 21.9%
28.3% 26.7% 23.0% 19.1% 49.3% 29.3% 22.7% 22.8% 91.5% 19.3%
14.3% 8.9% 22.7% 21.6% 10.4% 16.5% 11.5% 9.7% 10.1% 20.1%
16.2% 11.7% 18.6% 14.8% 12.1% 11.4% 14.1% 9.4% 11.3% 15.4%
0.7% 0.9% -0.9% -0.4% -2.1% 0.5% 0.5% -1.3% 0.3% 0.3%
2.1% -1.1% -0.9% -0.9% -4.0% 0.5% 0.3% 0.2% -0.3% -0.3%
0.1% 1.0% -1.2% 0.0% -0.4% 1.1% 0.4% -0.3% 0.1% 0.2%
1.7% 3.5% -0.5% -0.2% -0.3% 1.6% -0.5% -0.4% 0.4% 1.0%
2.5 1.7 3.6 4.8 1.5 2.4 3.2 1.9 2.1 2.4
2.5 1.7 3.9 3.6 1.5 2.0 2.2 1.8 1.9 2.1
-0.8% 4.1% -6.9% 33.3% -0.5% 20.5% 45.0% 4.5% 9.4% 15.9%
0.0 0.2 -0.3 1.3 0.0 1.6 2.1 0.3 0.7 0.8
15.9% 8.1% 14.8% 24.4% 13.4% 12.9% 15.3% 11.5% 13.3% 14.9%
15.1% 9.1% 20.0% 24.6% 12.8% 13.5% 13.5% 12.2% 10.6% 17.3%
0.6% 35.3% 10.3% 38.0% 29.3% 29.1% -87.2% 9803.9% 91.9% 46.9% 0.6% 17.4% 16.6% 20.3% 5.5% 28.9% 206.5% 9.9% -9.3% 21.4% 363.2% 24.2% -21.7% 101.7% -2.5% 4.0% 45.7% 13.4%
15.6% 14.6% 14.3% -5.1% 11.8% 15.8% 8.9% 19.6% 21.0% 12.3% 23.5% 21.1% 7.3% 24.8%
11.9% 12.8% 13.1% 10.2% 9.2% 17.1% 14.3% 15.9% 20.4% 14.7% 21.6% 18.3% 8.5% 11.9%
-1.5% -1.7% -2.4% 1.8% -0.8% -0.9% -3.7% -1.4% 6.4% -0.8% -3.8% -3.5% -1.9% -2.0%
0.2% 0.6% 0.8% 11.3% 6.1% 0.5% -3.0% -1.8% 6.3% -3.7% -2.5% -6.5% -1.9% -13.3%
-1.4% -1.1% -1.7% 0.6% 0.3% -0.6% -2.1% -2.1% 4.0% -1.2% -3.4% -2.3% -1.6% -4.4%
0.6% 2.0% 3.0% 5.6% 8.1% 1.3% -0.9% -0.8% 4.8% 0.5% -1.1% -1.5% -1.5% -5.5%
2.4 2.0 2.1 1.7 2.6 3.4 3.0 1.9 3.2 1.3 8.6 2.1 2.1 1.8
2.2 1.6 1.5 1.4 1.5 3.3 2.3 1.8 2.9 1.1 7.1 2.1 2.6 1.4
6.9% 27.4% 31.7% 21.1% 80.2% 5.1% 30.2% 7.3% 11.4% 19.3% 17.5% -3.5% -19.7% 20.6%
0.8 0.4 0.5 0.4 0.4 0.9 0.6 0.3 0.7 0.3 2.4 0.5 0.6 0.2
14.9% 15.7% 11.3% 7.4% 21.7% 15.3% 17.9% 12.6% 11.7% 7.2% 28.2% 13.3% 15.4% 9.3%
20.3% 16.8% 9.8% 10.0% 14.1% 18.2% 15.8% 11.9% 10.8% 6.7% 28.3% 10.7% 17.1% 10.4%
Macquarie Research
16 December 2010
Fig 9
Note: Long-term average for PER and PBV since 2001 Source: Datastream, Macquarie Research, December 2010
Asia ex-Japan Strategy
7
Asia ex. Japan Valuation (post-1995 averages) and EPS revision Consensus 12-mo. Forward PER Prem/Disc Curr. L-term vs. L-term Standard Value Avg. Avg. Deviation
EPS growth
2010 EPS
2011 EPS
2009A
2010E
2011E
PBV ROE Prem/Dis c vs. LCurr. 124-wk 8-wk 4-wk 8-wk Curr. L-term term Standard mo. L-term 2012E Revision Revision Revision Revision Value Avg. Avg. Deviation Trailing Avg.
Asia Ex. Japan
12.5
12.3
1.4%
0.1
22.5%
38.9%
12.9%
13.6%
0.3%
-1.9%
-0.3%
-0.5%
2.1
2.0
8.1%
0.5
13.3%
12.7%
By Country China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand
12.2 16.7 16.7 14.5 9.7 14.8 15.5 14.1 12.6 12.4
13.1 15.1 13.5 11.3 10.3 15.3 14.5 15.8 17.1 13.1
-7.0% 10.7% 23.1% 27.8% -5.1% -3.3% 7.0% -10.8% -26.0% -5.0%
-0.2 0.6 1.0 0.6 -0.2 -0.2 0.4 -0.6 -0.8 -0.4
16.2% -2.9% 40% 8.3% 59.7% -20.1% 15.2% -10.4% 51.6% 21.9%
28.3% 26.7% 23.0% 19.1% 49.3% 29.3% 22.7% 22.8% 91.5% 19.3%
14.3% 8.9% 22.7% 21.6% 10.4% 16.5% 11.5% 9.7% 10.1% 20.1%
16.2% 11.7% 18.6% 14.8% 12.1% 11.4% 14.1% 9.4% 11.3% 15.4%
0.7% 0.9% -0.9% -0.4% -2.1% 0.5% 0.5% -1.3% 0.3% 0.3%
2.1% -1.1% -0.9% -0.9% -4.0% 0.5% 0.3% 0.2% -0.3% -0.3%
0.1% 1.0% -1.2% 0.0% -0.4% 1.1% 0.4% -0.3% 0.1% 0.2%
1.7% 3.5% -0.5% -0.2% -0.3% 1.6% -0.5% -0.4% 0.4% 1.0%
2.5 1.7 3.6 4.8 1.5 2.4 3.2 1.9 2.1 2.4
2.5 1.7 3.9 3.6 1.5 2.0 2.2 1.8 1.9 2.1
-0.8% 4.1% -6.9% 33.3% -0.5% 20.5% 45.0% 4.5% 9.4% 15.9%
0.0 0.2 -0.3 1.3 0.0 1.6 2.1 0.3 0.7 0.8
15.9% 8.1% 14.8% 24.4% 13.4% 12.9% 15.3% 11.5% 13.3% 14.9%
15.1% 9.1% 20.0% 24.6% 12.8% 13.5% 13.5% 12.2% 10.6% 17.3%
By Sector Energy Materials Cap Gds Transport Auto & Compo Retailing Food/Bevg./Tobacco Banks Insurance Real Estate Software & Services Tech Hardware Telecom Utilities
11.2 10.8 12.8 11.8 10.1 18.0 15.1 11.2 18.4 14.7 20.9 12.2 12.0 14.6
11.8 10.8 14.7 13.9 10.8 13.9 14.9 13.9 20.1 14.5 23.2 15.9 15.2 13.2
-4.9% 0.2% -12.9% -15.0% -7.2% 29.9% 1.0% -19.5% -8.1% 1.5% -9.8% -23.4% -21.4% 10.2%
-0.1 0.0 -0.7 -0.4 -0.2 1.3 0.0 -0.5 -0.3 0.1 -0.2 -0.6 -0.7 0.5
0.6% 35.3% 10.3% 38.0% 29.3% 29.1% -87.2% 9803.9% 91.9% 46.9% 0.6% 17.4% 16.6% 20.3% 5.5% 28.9% 206.5% 9.9% -9.3% 21.4% 363.2% 24.2% -21.7% 101.7% -2.5% 4.0% 45.7% 13.4%
15.6% 14.6% 14.3% -5.1% 11.8% 15.8% 8.9% 19.6% 21.0% 12.3% 23.5% 21.1% 7.3% 24.8%
11.9% 12.8% 13.1% 10.2% 9.2% 17.1% 14.3% 15.9% 20.4% 14.7% 21.6% 18.3% 8.5% 11.9%
-1.5% -1.7% -2.4% 1.8% -0.8% -0.9% -3.7% -1.4% 6.4% -0.8% -3.8% -3.5% -1.9% -2.0%
0.2% 0.6% 0.8% 11.3% 6.1% 0.5% -3.0% -1.8% 6.3% -3.7% -2.5% -6.5% -1.9% -13.3%
-1.4% -1.1% -1.7% 0.6% 0.3% -0.6% -2.1% -2.1% 4.0% -1.2% -3.4% -2.3% -1.6% -4.4%
0.6% 2.0% 3.0% 5.6% 8.1% 1.3% -0.9% -0.8% 4.8% 0.5% -1.1% -1.5% -1.5% -5.5%
2.4 2.0 2.1 1.7 2.6 3.4 3.0 1.9 3.2 1.3 8.6 2.1 2.1 1.8
2.5 1.6 1.6 1.4 1.7 2.7 2.4 2.0 3.4 1.1 11.2 2.9 3.4 1.6
-2.5% 25.6% 31.6% 20.7% 55.9% 26.1% 24.0% -2.0% -6.5% 16.1% -23.8% -28.5% -38.0% 8.1%
0.0 0.8 0.9 0.8 1.4 0.6 1.0 -0.1 -0.2 0.5 -0.2 -0.5 -1.1 0.3
14.9% 15.7% 11.3% 7.4% 21.7% 15.3% 17.9% 12.6% 11.7% 7.2% 28.2% 13.3% 15.4% 9.3%
20.3% 16.8% 9.8% 10.0% 14.1% 18.2% 15.8% 11.9% 10.8% 6.7% 28.3% 10.7% 17.1% 10.4%
Macquarie Research
16 December 2010
Fig 10
Note: Long-term average for PER and PBV since 1995 Source: Datastream, Macquarie Research, December 2010
Asia ex-Japan Strategy
8
Macquarie Research
Fig 11
Asia ex-Japan Strategy
Monthly foreign net buying of Asian equities (US$m) Malaysia
7,002 9,744 1,124 16,608 7,663 23,990 16,962 477 -16,364
11,512 6,807 -2,032 12,457 10,188 -3,549 -12,659 -29,095 -36,742
-857 -143 281 -633 101 2,947 2,135 1,853 -4,942
1,469 2,741 738 6,702 8,627 10,901 8,338 18,518 -12,918
-123 88 -50 -80 278 354 720 1,354 -1,135
96 435 873 1,168 2,126 -1,733 1,942 3,596 1,756
19,098 19,671 935 36,221 28,981 32,910 17,439 -3,296 -70,346
-21,898 19,206 5,599 69,854 72,588 92,831 47,181 43,471 -37,691
1,430 340
-853
72 130
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 2009
-1,597 -460 414 3,240 2,044 716 2,643 276 4,561 -336 819 3,297 15,617
523 -746 -15 2,936 2,989 1,838 4,724 3,023 4,153 1,368 1,679 1,973 24,446
-121 -98 62 108 234 428 266 88 679 20 -394 -136 1,137
-869 -539 63 1,473 4,253 695 2,400 827 4,142 1,791 1,177 2,227 17,639
-52 24 -128 408 -37 14 52 -16 203 -175 97 29 420
-110 -47 156 237 189 74 315 207 93 -327 190 406 1,383
-2,227 -1,867 553 8,403 9,673 3,766 10,400 4,406 13,831 2,341 3,568 7,796 60,642
-9,425 -8,820 -9,027 2,041 5,848 -22 10,623 6,076 -1,592 8,319 300 12,888 17,211
2 -7 9 -4 38 -10 57 31 -114 21 30 18 71
-150 -36 -53 -12 -22 2 12 95 130 38 11 4 20
-1 1 18 -4 -13 -11 6 -5 8 13 -20 -5 -13
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 2010 YTD YTD % Mkt Cap
1 -2,875 3,505 3,806 -4,158 -391 2,005 -1,411 2,781 1,421 1,803
606 -42 4,776 4,832 -5,393 356 2,465 -500 3,832 3,619 1,673
-227 164 1,373 -127 -1,813 92 214 505 1,171 516 -208
-230 464 4,135 2,220 -1,989 2,099 3,777 2,404 6,373 5,579 4,159
43 65 44 198 5 9 -10 -51 359 631 -29
49 -213 537 169 -178 493 533 227 668 36 -280
241 -2,437 14,369 11,098 -13,526 2,659 8,983 1,173 15,185 11,802 7,118
17,430 3,043 858 13,861 -6,636 -10,323 2,084 -985 969 6,161 5,112
21 37 15 94 47 57 23 32 35 65 57
17 17 109 80 26 30 42 41 25 32 40
-26 -17 -70 -30 -10 6 31 18 -32 -100 -1
723 956 1,425 578 284
Japan Vietnam
Pakistan
Sri Lanka
*Korea Thailand
2000 2001 2002 2003 2004 2005 2006 2007 2008
India Philippines Indonesia
Asia Ex-J (6)
Taiwan
Note: The data is last updated as of 3 December 2010. Malaysia data retrieved monthly. Korea denotes foreign net purchase in Korean equity market, including KOSPI and KOSDAQ India denotes foreign institutional investors net investments in Indian equity market from Securities & Exchange Board Source: Bloomberg, Macquarie Research, December, 2010
16 December 2010
9
Macquarie Research Important disclosures:
Asia ex-Japan Strategy
Recommendation definitions
Volatility index definition*
Financial definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return
This is calculated from the volatility of historical price movements.
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests
Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative.
Low–medium – stock should be expected to move up or down at least 25–30% in a year.
EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares
Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Australian/NZ/Canada stocks only
All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Medium – stock should be expected to move up or down at least 30–40% in a year.
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Recommendation proportions – For quarter ending 30 September 2010 Outperform Neutral Underperform
AU/NZ 51.06% 34.15% 14.79%
Asia 64.41% 17.31% 18.28%
RSA 55.07% 36.23% 8.70%
USA 46.58% 48.40% 5.02%
CA 66.99% 28.71% 4.31%
EUR 50.00% (for US coverage by MCUSA, 13.73% of stocks covered are investment banking clients) 36.81% (for US coverage by MCUSA, 11.76% of stocks covered are investment banking clients) 13.19% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)
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The Research Distribution Policy of Macquarie Capital Markets Canada Ltd is to allow all clients that are entitled to have equal access to our research. United Kingdom: In the United Kingdom, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated by the Financial Services Authority (No. 193905). Germany: In Germany, research is issued and distributed by Macquarie Capital (Europe) Ltd, Niederlassung Deutschland, which is authorised and regulated in the United Kingdom by the Financial Services Authority (No. 193905). France: In France, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated in the United Kingdom by the Financial Services Authority (No. 193905). Hong Kong: In Hong Kong, research is issued and distributed by Macquarie Capital Securities Ltd, which is licensed and regulated by the Securities and Futures Commission. Japan: In
16 December 2010
10
Macquarie Research
Asia ex-Japan Strategy
Japan, research is issued and distributed by Macquarie Capital Securities (Japan) Limited, a member of the Tokyo Stock Exchange, Inc. and Osaka Securities Exchange Co. Ltd (Financial Instruments Firm, Kanto Financial Bureau (kin-sho) No. 231, a member of Japan Securities Dealers Association and Financial Futures Association of Japan). India: In India, research is issued and distributed by Macquarie Capital Securities (India) Pvt Ltd. Level 3, Mafatlal Centre, Nariman Point, Mumbai 400 021, INDIA, which is a SEBI registered Stock Broker having membership with National Stock Exchange of India Limited (INB231246738) and Bombay Stock Exchange Limited (INB011246734). Malaysia: In Malaysia, research is issued and distributed by Macquarie Capital Securities (Malaysia) Sdn. Bhd. (Company registration number: 463469-W) which is a Participating Organisation of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission. Taiwan: Information on securities/instruments that are traded in Taiwan is distributed by Macquarie Capital Securities Ltd, Taiwan Branch, which is licensed and regulated by the Financial Supervisory Commission. No portion of the report may be reproduced or quoted by the press or any other person without authorisation from Macquarie. Nothing in this research shall be construed as a solicitation to buy or sell any security or product. Thailand: In Thailand, research is issued and distributed by Macquarie Securities (Thailand) Ltd, a licensed securities company that is authorized by the Ministry of Finance, regulated by the Securities and Exchange Commission of Thailand and is an exchange member no. 28 of the Stock Exchange of Thailand. The Thai Institute of Directors Association has disclosed the Corporate Governance Report of Thai Listed Companies made pursuant to the policy of the Securities and Exchange Commission of Thailand. Macquarie Securities (Thailand) Ltd does not endorse the result of the Corporate Governance Report of Thai Listed Companies but this Report can be accessed at: http://www.thai-iod.com/en/publications.asp?type=4. South Korea: In South Korea, unless otherwise stated, research is prepared, issued and distributed by Macquarie Securities Korea Limited, which is regulated by the Financial Supervisory Services. Information on analysts in MSKL is disclosed at http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03053&pageDiv=02. South Africa: In South Africa, research is issued and distributed by Macquarie First South Securities (Pty) Limited, a member of the JSE Limited. Singapore: In Singapore, research is issued and distributed by Macquarie Capital Securities (Singapore) Pte Ltd (Company Registration Number: 198702912C), a Capital Markets Services license holder under the Securities and Futures Act to deal in securities and provide custodial services in Singapore. Pursuant to the Financial Advisers (Amendment) Regulations 2005, Macquarie Capital Securities (Singapore) Pte Ltd is exempt from complying with sections 25, 27 and 36 of the Financial Advisers Act. All Singapore-based recipients of research produced by Macquarie Capital (Europe) Limited, Macquarie Capital Markets Canada Ltd, Macquarie First South Securities (Pty) Limited and Macquarie Capital (USA) Inc. represent and warrant that they are institutional investors as defined in the Securities and Futures Act. United States: In the United States, research is issued and distributed by Macquarie Capital (USA) Inc., which is a registered broker-dealer and member of FINRA. Macquarie Capital (USA) Inc, accepts responsibility for the content of each research report prepared by one of its non-US affiliates when the research report is distributed in the United States by Macquarie Capital (USA) Inc. Macquarie Capital (USA) Inc.’s affiliate’s analysts are not registered as research analysts with FINRA, may not be associated persons of Macquarie Capital (USA) Inc., and therefore may not be subject to FINRA rule restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Any persons receiving this report directly from Macquarie Capital (USA) Inc. and wishing to effect a transaction in any security described herein should do so with Macquarie Capital (USA) Inc. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures, or contact your registered representative at 1-888-MACSTOCK, or write to the Supervisory Analysts, Research Department, Macquarie Securities, 125 W.55th Street, New York, NY 10019. © Macquarie Group Auckland Tel: (649) 377 6433
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16 December 2010
11
Asia Research Head of Equity Research John O’Connell (Global Co – Head) David Rickards (Global Co – Head) Chris Hunt (Asia – Head) Tim Smart (Asia – Deputy Head)
Oil, Gas and Petrochemicals (612) 8232 7544 (44 20) 3037 4399 (852) 3922 1119 (852) 3922 3565
Automobiles/Auto Parts Leah Jiang (China) Sanjay Doshi (India) Clive Wiggins (Japan) Dan Lucas (Japan) Michael Sohn (Korea) Linda Huang (Taiwan)
(8621) 2412 9020 (91) 22 6653 3061 (813) 3512 7856 (813) 3512 6050 (82 2) 3705 8644 (8862) 2734 7521
Banks and Non-Bank Financials Ismael Pili (Asia, Hong Kong) Victor Wang (China) Alastair Macdonald (Japan) Mudit Painuly (India) Suresh Ganapathy (India) Ferry Wong (Indonesia) Chan Hwang (Korea) Alex Pomento (Philippines) Matthew Smith (Malaysia, Singapore) Jemmy Huang (Taiwan) Passakorn Linmaneechote (Thailand)
(852) 3922 4774 (852) 3922 1479 (813) 3512 7476 (9122) 6653 3044 (9122) 6653 3042 (6221) 515 7335 (822) 3705 8643 (632) 857 0899 (65) 6231 2981 (8862) 2734 7530 (662) 694 7728
Conglomerates Leah Jiang (China) Julian Bu (China, Hong Kong) Alex Pomento (Philippines)
(8621) 2412 9020 (852) 3922 3263 (632) 857 0899
Consumer and Gaming Gary Pinge (Asia) Toby Williams (Japan) Lyall Taylor (Indonesia) HongSuk Na (Korea) Alex Pomento (Philippines) Linda Huang (China, Taiwan) Amit Mishra (India)
(852) 3922 3557 (813) 3512 7392 (6221) 2598 8489 (822) 3705 8678 (632) 857 0899 (8862) 2734 7521 (91) 22 6653 3051
Emerging Leaders Jake Lynch (China, Asia) Jonathan Hsu (China, Hong Kong) Robert Burghart (Japan)
(8621) 2412 9007 (852) 3922 4625 (813) 3512 7853
Industrials Inderjeetsingh Bhatia (India) Christopher Cintavey (Japan) Janet Lewis (Japan) Chang Han Joo (Korea) Sunaina Dhanuka (Malaysia) Linda Huang (Taiwan) David Gambrill (Thailand)
(9122) 6653 3166 (813) 3512 7432 (813) 3512 7475 (822) 3705 8511 (603) 2059 8993 (8862) 2734 7521 (662) 694 7753
Insurance Scott Russell (Asia) Makarim Salman (Japan) Chung Jun Yun (Korea)
(852) 3922 3567 (813) 3512 7421 (822) 2095 7222
Media and Internet Jiong Shao (China, Hong Kong) Steve Zhang (China, Hong Kong) Prem Jearajasingam (Malaysia) Alex Pomento (Philippines)
(852) 3922 3566 (852) 3922 3578 (603) 2059 8989 (632) 857 0899
Laban Yu (China) Jal Irani (India) Polina Diyachkina (Japan) Shawn Park (Korea) Sunaina Dhanuka (Malaysia) Linda Huang (Taiwan) Trevor Buchinski (Thailand)
Transport & Infrastructure (852) 3922 4691 (9122) 6653 3040 (813) 3512 7886 (822) 3705 8669 (603) 2059 8993 (8862) 2734 7521 (662) 694 7829
Pharmaceuticals and Healthcare Jonathan Hsu (Hong Kong) Abhishek Singhal (India) Naomi Kumagai (Japan) Christina Lee (Korea)
(852) 3922 4625 (9122) 6653 3052 (813) 3512 7474 (852) 3922 3571 (852) 3922 4731 (852) 3922 3573 (9122) 6653 3170 (813) 3512 7433 (822) 3705 8511 (632) 857 0899 (65) 6231 2838 (65) 6231 2839 (8862) 2734 7522 (662) 694 7727
Resources / Metals and Mining Andrew Dale (Asia) Graeme Train (China) Christina Lee (Hong Kong) Carol Cao (China, Hong Kong) Rakesh Arora (India) Adam Worthington (Indonesia) Albert Saputro (Indonesia) Polina Diyachkina (Japan)
(852) 3922 3587 (8621) 2412 9035 (852) 3922 3571 (852) 3922 4075 (9122) 6653 3054 (852) 3922 4626 (6221) 515 7340 (813) 3512 7886
Technology Jeffrey Su (Asia) Stephen Chow (China, Hong Kong) Lisa Soh (China) Nitin Mohta (India) Damian Thong (Japan) David Gibson (Japan) George Chang (Japan) Michiko Kakiya (Japan) Yukihiro Goto (Japan) Daniel Kim (Korea) Benjamin Ban (Korea) Daniel Chang (Taiwan) James Chiu (Taiwan) Jimmy Hsu (Taiwan)
(8862) 2734 7512 (852) 3922 3634 (852) 3922 1401 (9122) 6653 3050 (813) 3512 7877 (813) 3512 7880 (813) 3512 7854 (813) 3512 7868 (813) 3512 5984 (822) 3705 8641 (822) 3705 8659 (8862) 2734 7516 (8862) 2734 7517 (8862) 2734 7533
Telecoms Keith Neruda (Asia) Tim Smart (China) Lisa Soh (China, Hong Kong) Riaz Hyder (Indonesia) Nathan Ramler (Japan) Prem Jearajasingam (Malaysia) Joseph Quinn (Taiwan) Best Waiyanont (Thailand)
(852) 3922 4773 (813) 3512 7475 (852) 3922 3598 (822) 3705 8511 (603) 2059 8993
Utilities Adam Worthington (Asia) Carol Cao (China, Hong Kong) Jeff Evans (India) Ayako Mitsui Boston (Japan) Prem Jearajasingam (Malaysia) Alex Pomento (Philippines)
(852) 3922 4626 (852) 3922 4075 (9122) 3356 3053 (813) 3512 7885 (603) 2059 8989 (632) 857 0899
Commodities
Property Callum Bramah (Asia) Eva Lee (China, Hong Kong) Unmesh Sharma (India) Hiroshi Okubo (Japan) Chang Han Joo (Korea) Alex Pomento (Philippines) Tuck Yin Soong (Singapore) Elaine Cheong (Singapore) Corinne Jian (Taiwan) Patti Tomaitrichitr (Thailand)
Anderson Chow (China, Asia) Janet Lewis (Asia, Japan) Wei Sim (China, Hong Kong) Chang Han Joo (Korea) Sunaina Dhanuka (Malaysia)
(65) 6231 2830 (852) 3922 3565 (852) 3922 1401 (6221) 2598 8486 (813) 3512 7875 (603) 2059 8989 (8862) 2734 7519 (662) 694 7993
Jim Lennon Max Layton Jan Stuart Duncan Hobbs Bonnie Liu Graeme Train Rakesh Arora
(4420) 3037 4271 (4420) 3037 4273 (1 212) 231 2485 (4420) 3037 4497 (8621) 2412 9008 (8621) 2412 9035 (9122) 6653 3054
Data Services Andrea Dailly (Asia) Eric Yeung
(852) 3922 4076 (852) 3922 4077
Economics Richard Jerram (Asia, Japan) Philip McNicholas (ASEAN) Richard Gibbs (Australia) Paul Cavey (China) Renee Chen (Hong Kong, Taiwan)
(813) 3512 7855 (65) 6231 2982 (612) 8232 3935 (852) 3922 3570 (852) 3922 3597
Quantitative / CPG Martin Emery (Asia) Viking Kwok (Asia) Burke Lau (Asia) George Platt (Australia) Patrick Hansen (Japan) Ayumu Kuroda (Japan) Simon Rigney (Japan)
(852) 3922 3582 (852) 3922 4735 (852) 3922 5494 (612) 8232 6539 (813) 3512 7876 (813) 3512 7569 (813) 3512 7872
Strategy/Country Michael Kurtz (Asia) John Woods (Asia) Mark Matthews (Asia) Jiong Shao (China, Hong Kong) Rakesh Arora (India) Ferry Wong (Indonesia) David Gibson (Japan) Peter Eadon-Clarke (Japan) Chan Hwang (Korea) Kieran Calder (Malaysia) Alex Pomento (Philippines) Daniel Chang (Taiwan) David Gambrill (Thailand)
(852) 3922 1403 (852) 3922 4636 (65) 6231 2841 (852) 3922 3566 (9122) 6653 3054 (6221) 515 7335 (813) 3512 7880 (813) 3512 7850 (822) 3705 8643 (603) 2059 8992 (632) 857 0899 (8862) 2734 7516 (662) 694 7753
Find our research at Macquarie: www.macquarie.com.au/research Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com TheMarkets.com www.themarkets.com Email
[email protected] for access
Asia Sales Regional Heads of Sales Robin Black (Asia) Chris Gray (ASEAN) Peter Slater (Boston) Jeffrey Shiu (China & Hong Kong) Thomas Renz (Geneva) Andrew Mouat (India) Kenneth Yap (Indonesia) JJ Kim (Korea) Jason Lee (Malaysia) Chris Gould (Malaysia) Gino C Rojas (Philippines) Greg Norton-Kidd (New York) Luke Sullivan (New York) Eric Roles (New York) Sheila Schroeder (San Francisco)
(852) 3922 2074 (65) 6231 2888 (1 617) 598 2502 (852) 3922 2061 (41) 22 818 7712 (9122) 6653 3200 (6221) 515 1555 (822) 3705 8799 (603) 2059 8888 (603) 2059 8888 (632) 857 0761 (1 212) 231 2527 (1 212) 231 2507 (1 212) 231 2559 (1 415) 762 5001
Regional Heads of Sales cont’d
Sales Trading cont’d
Miki Edelman (Taiwan) Angus Kent (Thailand) Michael Newman (Tokyo) Angus Innes (UK/Europe) Rob Fabbro (UK/Europe) Sean Alexander (Generalist)
Chris Reale (New York) Stanley Dunda (Indonesia) James Aitchison (Korea) Kenneth Cheung (Malaysia) Michael Santos (Philippines) Isaac Huang (Taiwan) Dominic Shore (Thailand)
(8862) 2734 7580 (662) 694 7601 (813) 3512 7920 (44) 20 3037 4841 (44) 20 3037 4865 (852) 3922 2101
Regional Head of Distribution Justin Crawford (Asia)
(852) 3922 2065
Sales Trading Adam Zaki (Asia) Yat Quan Tan (Hong Kong) Phil Sellaroli (Japan) Matthew Ryan (Singapore) Mike Keen (Europe)
(852) 3922 2002 (852) 3922 2028 (813) 3512 7837 (65) 6231 2888 (44) 20 3037 4905
(1 212) 231 2616 (6221) 515 1555 (822) 3705 9990 (603) 2059 8888 (632) 857 0813 (8862) 2734 7582 (662) 694 7707
Alternative Strategies Convertibles - Roland Sharman Depository Receipts – Seung-Jin Lee Derivatives – Mark Holland Futures - Tim Smith Structured Products - Andrew Terlich
(852) 3922 2095 (65) 6231 1150 (852) 3922 2081 (852) 3922 2113 (852) 3922 2013
