Despite recent rallies, equities in Asia-Pacific markets may face downward risk in the near term because corporate earnings and economic fundamentals remain weak, fund managers at Scotland-based Aberdeen Asset Management Ltd told a briefing yesterday.
“There are still no solid signs of a pick-up in end-user demand although the market has revived on the recent re-stocking,” Nicholas Yeo (姚鴻耀), head of the firm’s China/Hong Kong equities department, said in Taipei.
The region’s overall growth of corporate earnings excluding mining industries may still see a 20 percent to 30 percent decline in the third quarter of this year, bottoming out from 40 percent drops in previous quarters, he said, adding that earning per share may only emerge from negative territory next year.
“No green shoots of a [corporate] earning recovery are in sight,” he said.
Yao said that the worst may be behind us, but the upcoming recovery will likely be W-shaped, not U-shaped or V-shaped.
But Yeo said now is one of those rare times to cautiously trade value shares for future gains as the region’s price-to-book ratio levels are at historically lows of around 1.6.
Aberdeen is still in favor of emerging markets’ long-term prospects, viewing the emerging markets as likely to play a leading role in the upcoming global economic recovery, Andrew Gillan, investment manager of the firm’s Asian equities, said at yesterday’s briefing.
“Given the region’s GDP performance and fiscal positions, Asian and emerging markets are much better able to weather the current downturn,” he said.
An under-leveraged environment with high saving rates, healthy surpluses and financial soundness would also help sustain the region’s future economic growth, he said.
As global investors’ risk aversion — which is still at a historical high — continues to fall, emerging markets with long-term opportunities are likely to further benefit from a net inflow of capital, Gillan said.
The investment manager said that the firm believes domestic consumption will spur more sustainable growth in the region in the long run, although most Asia-Pacific economies are still export-dependent.
Aberdeen overweights Indian and Mexican markets because companies in the two economies are likely to see earnings growth driven by vast domestic markets instead of export sectors, and underweights South Korean, Taiwanese and Russian markets.
Among various industries, the asset management firm said it favors financials and domestic consumption sectors over telecoms and commodities shares.
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