Asian energy stocks are the best performers in the region this year, as the price of crude oil climbed above US$99 a barrel. They're still worth buying, Merrill Lynch & Co says.
PetroChina Co, which this year overtook Exxon Mobil Corp as the world's largest company, is cheap relative to earnings prospects, said Stephen Corry, an investment strategist at Merrill's private banking unit, which oversees US$1.8 trillion worldwide. Oil services companies such as Malaysia's KNM Group Bhd will benefit from increased exploration activities, he said.
"Energy as a whole is a good sector to be in," Hong Kong-based Corry, 37, said in an interview. "If you believe that oil prices are going to be higher for a long time, then this is the place to be."
Asian energy shares have outperformed global peers owing to record profits among Chinese and Indian producers, which are benefiting from demand in the world's fastest growing major economies.
That demand has motivated energy companies such as PetroChina and rival Cnooc Ltd to expand oil and gas output while Oil & Natural Gas Corp, India's biggest explorer, is boosting its exploration budget.
Merrill has "buy" recommendations on PetroChina, China Petroleum & Chemical Corp, the country's biggest refiner, and on India's Oil & Natural Gas. The investment bank assigns Singapore-based Keppel Corp, the world's largest maker of oil rigs, the same rating.
The MSCI Asia Pacific Energy Index has climbed 70 percent this year, making it the best-performing of the MSCI Asia Pacific Index's 10 industry groups. The energy measure's advance beats a 31 percent gain by the corresponding gauge in the US and a 6 percent increase by European energy stocks.
Three years of outperformance has valued the Asian energy index at 19 times estimated earnings, more than the 14 times for the US and 11 times for the MSCI Europe Energy Index.
Earnings per share of the 48 companies on the MSCI's energy benchmark are estimated to rise 7.6 percent this fiscal year from last year, surpassing a 2.8 percent gain in the US and a 0.8 percent drop in Europe.
"I do prefer Asian names," said Don Gimbel, who holds shares of Cnooc among the US$1.8 billion he manages at New York-based Carret & Co.
"The reason for picking Asia over the rest of the world is obvious. That's where demand is," he said.
New York crude oil futures rose to a record US$99.29 a barrel on Nov. 21. The contract for January delivery was recently at US$94.09. Oil futures have risen 54 percent this year.
"The supply of crude is falling worldwide, but the demand for oil is going up," said Puru Saxena, chief executive of Puru Saxena Ltd, a Hong Kong-based fund manager. "We've invested our clients' money in energy."
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