Tài liệu Bản báo cáo của HSBC quý 2 năm 2008 (tiếng Anh) pdf

By Garry Evans What kind of bear? Asia’s bear market is likely to be mild, not vicious Macro Equity Strategy Q2 2008 The investment world has changed. We believe that Asia is now in a bear market. From last October’s peak, the index has fallen 29%. Risk aversion is likely to continue and US growth will slow over the coming months. It may not be a particularly nasty bear, though. We see a “W-shaped” slowdown in the US, not a recession. Asian economic growth will decouple to a degree. There could even be a bounce in the second half as US policy initiatives kick in. But investment style in a bear market needs to be very different to what worked in 2003-7. Investors can either aggressively trade the dips and rallies, or stick to quality, long-term growth, which may become available cheaply. We recommend China, which represents good value again, Thailand and Korea for political change, and Malaysia which is classically defensive and where political worries are overdone. For sectors, we stick to structural growth stories such as consumer-related names, telecoms, infrastructure (for example, steel) and healthcare. Avoid Taiwan, Japan, technology, financials and energy. Disclosures and Disclaimer This report must be read with the disclosures and analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it Steven Y. Sun, CFA* Strategist +852 2822 4298 stevensun@hsbc.com.hk Steven Y. Sun is a strategist on HSBC’s Asia-Pacific equity strategy team. Steven joined HSBC in 2006, prior to which he was a China specialist for a private macroeconomic consultancy in Washington DC. Steven began his career as a financial analyst for a state-owned financial institution in Beijing in 1996. Main contributors Akane Nishizaki* Strategist +813 5203 3943 akane.nishizak@hsbc.co.jp Akane joined HSBC as a graduate trainee in 2001. After training, she worked in the treasury department in Tokyo for more than a year, selling foreign exchange, mainly options. She joined the equity research department in April 2005 as an associate in strategy. Jacqueline Tse* Strategist +852 2822 6602 jacquelinetse@hsbc.com.hk Jacqueline joined HSBC in February 2008 as an Equity Strategist, Asia Pacific. Her previous experience includes working with the corporate treasury team of a leading investment bank with particular emphasis on Korea, Thailand and Malaysia, Associate Economist for a leading bank, and Senior Financial Analyst for Hewlett Packard. She holds an MSc in Management Science and Operations Research from Columbia University, and a BA in Economics from the University of California, Berkeley. Garry Evans* Strategist +852 2996 6916 garryevans@hsbc.com.hk Garry heads HSBC’s equity strategy team in Asia-Pacific. His previous roles at HSBC include Head of Pan-Asian Equity Research and Chief Japan Strategist. Garry began his career as a financial journalist and was editor of Euromoney magazine for eight years before joining HSBC in Tokyo in 1998. Leo Li* Strategy Associate +852 2996 6919 leofli@hsbc.com.hk Leo Li joined HSBC as a strategy associate in 2007. He started his career in the finance industry as a marketing executive in RNC Capital after graduating from UC Irvine with an MBA in 2004. Leo also has a Bachelors degree in Information Engineering from the Chinese University of Hong Kong. Vivek R. Misra* Associate Bangalore Devendra Joshi* Associate Bangalore *Employed by non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to NYSE and/or NASD regulations. Q2 2008Equity StrategyWhat kind of bear? Equity Strategy Asia Pacific Second Quarter 2008 ab c Country weights and key reasons for our view Neutral HSBC recommended weight Last Quarter Rel perf last 3 mths Key pluses Key minuses Japan 49.0% 44.0% UNDER UNDER 6.3% Valuation the cheapest in history Economy already in recession Earnings growth likely to turn negative Politics in a stalemate Australia 12.3% 11.0% UNDER NEUTRAL -0.4% Domestic institutional buying should be a support Central bank still in tightening mode May not prove as defensive as in the past China 8.3% 10.0% OVER OVER -17.2% Valuations reasonable again, with PE down to 13x Economy likely to continue to grow robustly this year Long-term growth story intact Investor sentiment badly dented Korea 8.0% 9.5% OVER OVER -10.2% Lee Myung-bak’s policy programme a big positive Cheapest market in Asia, on PE of 10x Facing strong cyclical headwinds Taiwan 6.6% 5.5% UNDER UNDER 16.1% New president will improve relations with Beijing… …but perhaps not as fast as market expects The most cyclical market in Asia The two key sectors, banks and IT, both unattractive HK 5.0% 5.0% NEUTRAL NEUTRAL -10.0% Negative real interest rates GDP and earnings growth set to slow this year Prospects for property market are mixed India 4.1% 4.5% NEUTRAL OVER -18.4% Low sensitivity to exports and US economy Long-term structural growth story still exciting Downside risk to consensus earnings forecast GDP growth to slow to 7% in FY2008-9 Election in H2 will make market nervous Singapore 2.3% 4.0% OVER OVER 1.8% Liquidity conditions to remain loose Cheap, with PE down to 12x Defensive, with range of blue-chip growth companies Exports are very high percentage of GDP Malaysia 1.5% 2.5% OVER UNDER 1.5% Political worries after March’s election are overstated Valuations now reasonable Political concerns may linger if PM resigns Economy – but not listed stocks – rather cyclical Thailand 1.0% 2.5% OVER OVER 19.8% New government to boost infrastructure spending Cheap: PE 11x Political instability not over Indonesia 1.0% 0.5% UNDER UNDER 3.1% Economic growth to be robust ahead of 2009 election Structural worries: inflation and budget deficit Not cheap for such as volatile market NZ 0.3% 0.0% UNDER UNDER 3.0% Few interesting investible stocks Philippines 0.3% 0.0% UNDER UNDER -9.4% Too risky for the current environment Pakistan 0.1% 0.0% UNDER UNDER 29.2% Political situation still unstable Vietnam 0.0% 1.0% OFF-BMK OFF-BMK -20.8% Offers long-term value for an exciting story Government has grossly mishandled macro policy Source: HSBC, Note: In this and other tables, markets or sectors are ranked by their neutral weight in the MSCI Asia-Pacific index. Sector weights and key reasons for our view Neutral HSBC recommended weight Last Quarter * Rel perf last 3 mnths Key pluses Key minuses Financials 24.5% 22.0% UNDER NEUTRAL -6.7% Long-term asset-gatherer story still intact NPLs likely to rise as economies slow Falling interest rates will hurt net margins Industrials 15.8% 13.5% UNDER UNDER 2.0% Infrastructure-related companies attractive Sector contains many cyclical stocks IT 12.9% 11.0% UNDER UNDER 2.6% LCD panels to do well until Olympics Company guidance weakening sharply High raw materials prices squeezing margins Earnings forecasts to be revised down further Cons Discretionary 12.7% 10.5% UNDER UNDER 2.0% Structural consumer story in Asia intact Many stocks very export oriented Auto makers dependent on US consumer Materials 11.7% 12.0% NEUTRAL UNDER 2.7% Asian steel demand remains strong Commodity prices likely to be only mixed Telecoms 5.8% 8.5% OVER OVER -0.1% Non-cyclical growth story continues Valuations back to reasonable levels Regulatory risk Energy 4.6% 4.5% NEUTRAL OVER -5.7% Refining margins likely to improve further Oil stocks decoupled from crude price Regulatory risk as governments keep prices down Cons Staples 4.2% 7.5% OVER OVER 6.2% One of the most defensive sectors Beneficiary of the Asian consumer story Valuations quite expensive Utilities 4.2% 4.5% NEUTRAL OVER 10.5% Most defensive sector High input costs raise regulatory risk Health Care 3.5% 6.0% OVER OVER 8.0% Defensive, with strong structural growth Few large-cap stocks Source: HSBC (*Note that last quarter, cons discretionary, materials and industrials were bundled together under cyclicals (UNDER), and consumer staples, healthcare and utilities under defensives (OVER)) 1 Equity Strategy Asia Pacific Second Quarter 2008 ab c A bear market …but what kind? If it looks like a bear market and feels like a bear market, it probably is a bear market. At its low point in March, MSCI Asia ex Japan was down 29.6% from its peak last October. In our view, that puts it technically in bear market territory. And fundamentals over the next few months will point to the same conclusion: we expect one quarter of negative growth for the US in the first half, risk aversion to continue as credit markets remain dysfunctional for some time yet, international investors – who sold USD39bn of Asian equities in the past three months – to remain risk-averse, and inflation (now averaging over 6% in Asia ex Japan) to handicap some Asian central banks from cutting rates aggressively. But bear markets need not be that vicious. From among the three bear markets in Asian investment history, 1994 stands out as being relatively mild, with stocks bumping along the bottom for a year or so but without the stomach-churning drops seen in 1997-8 or 2000-1. We believe the chances are fairly high that 2007-8 will be a mild bear market too: the US will see growth slow to 1.5% this year but will (just) escape a technical recession, the US authorities have reacted quickly to tackle financial risks, Asian economic growth is likely to decouple to a degree from the US slowdown, and so far at least analysts’ Summary There are more uncertainties about the short-term outlook for Asian equities than usual. How long will risk aversion continue? How much will the US slow, and for how long? Will Asian earnings forecasts be cut? But there is little doubt that markets will continue to be tricky for some time. Even though the exact trajectory of the next nine months is hard to predict (for what it is worth, we expect another leg down followed by a second half rebound and a disappointing 2009), any outcome points to investors needing to be prudent and sticking to quality, structural growth stories at reasonable valuations. Key changes in view To From Reason Lower Australia UNDER NEUTRAL Economy slowing while central bank raising rates; commodity outlook mixed Lower India NEUTRAL OVER Nervousness about H2 election; earnings forecasts may be revised down Raise Malaysia OVER UNDER Valuations now reasonable; post-election politics not so big a risk Lower Financials UNDER NEUTRAL Falling net margins, rising NPLs, futher US-related write-offs Lower Energy NEUTRAL OVER Regulatory risk: governments keeping retail energy prices down Source: HSBC 2 Equity Strategy Asia Pacific Second Quarter 2008 ab c forecasts for Asian earnings growth have hardly been revised down at all – suggesting we may avoid an earnings recession. The exact trajectory of Asian stock markets for the next six months is hard to forecast because there are so many uncertainties. Based on our US economists’ view of a “W-shaped” slowdown in the US, the most likely scenario in our view is one where credit problems over the next quarter cause a further leg down for Asian stocks, followed by a rebound in the second half, as the US economy responds to tax and rate cuts, but then a period of disappointment in 2009 as global growth remains sluggish and credit conditions stay tight. For this reason, we forecast just a 1% rise in MSCI Asia Pacific to year-end, but a slightly better 10% rise for the higher beta MSCI Asia ex Japan. Whatever the exact trajectory, it is clear we are in a different investment world to the gung-ho bull market of 2003-7. It is harder, but not impossible, for investors to make profits in such a market. Whatever type of bear market this turns out to be, though, the investment strategy should be the same. We see only two ways of playing this sort of market: (1) to trade in and out of the dips and rallies (since bear markets tend to be characterised by sharp, 10%-plus, rallies as investors try to spot the bottom); (2) to focus on quality, long-term structural growth stories (the Asian consumer, infrastructure, improving technology, healthcare etc), where stocks will fall enough to become available from time to time at attractive valuations. Market calls Transparent, stable, liquid, cheap – and changing In this sort of market, ideally we want to be invested in markets with (1) good earnings visibility, (2) low sensitivity to US growth, (3) loose monetary policy and strong liquidity, (3) attractive valuations, (4) low risk of structural problems, and (5) ideally, a non-correlated reason to outperform, such as political change. Obviously, no single market will have all these factors, but our country recommendations are based on those that have a good smattering of them (see our scorecard on p17). We continue to overweight China: PE has almost halved to 13x, earnings momentum remains positive and this year’s forecast of 21% growth should be comfortably achievable, and the risk of inflation accelerating is overdone. We like two markets where political change will help: Thailand and Korea (coincidentally, also the two cheapest markets in the region). In Thailand, the new democratically elected Index targets Index Current level 3/27/2008 Target end 2008 Upside Old end- 2008 target Target end 2009 Upside vs 2008 Old end- 2009 target Japan TPX Index 1,226 1,150 -6.2% 1,500 1,250 8.7% 1,600 Australia AS51 Index 5,372 5,500 2.4% 6,800 6,000 9.1% 7,500 China MXCN Index 64 75 17.4% 105 85 13.3% 120 Korea KOSPI Index 1,676 1,900 13.3% 2,200 2,200 15.8% 2,500 Taiwan TWSE Index 8,606 9,000 4.6% 8,200 10,000 11.1% 9,000 HK HSI Index 22,664 26,000 14.7% 31,000 29,000 11.5% 35,000 India Sensex Index 16,016 17,500 9.3% 23,000 21,000 20.0% 28,000 Singapore FSSTI Index 3,025 3,500 15.7% 4,000 4,000 14.3% 4,400 Malaysia KLCI Index 1,254 1,380 10.0% 1,500 1,500 8.7% 1,650 Thailand SET Index 823 950 15.4% 1,000 1,050 10.5% 1,200 Indonesia JCI Index 2,451 2,200 -10.3% 2,600 2,500 13.6% 2,900 Vietnam VNINDEX Index 509 600 17.9% 1,100 750 25.0% 1,300 MSCI Asia ex Japan MXFEJ Index 491 540 10.0% 570 613 13.6% 647 MSCI Asia Pacific MXAP Index 140 142 1.7% 177 158 10.7% 195 Source: HSBC 3 Equity Strategy Asia Pacific Second Quarter 2008 ab c government should survive longer than some people fear, and will spend to kick-start growth. Korea is a little cyclical for the current circumstances (so we recommend domestic plays, not exporters), but the policies of new president Lee Myung-bak look interesting and could be implemented quickly if he wins a parliamentary majority on 9 April. We have moved to overweight on Malaysia, where the earlier premium valuation has disappeared and where worries about political turmoil after the recent election are, in our view, exaggerated. This is Asia’s most defensive market, and can now be bought on a reasonable multiple. We stay overweight Singapore, which also offers an attractive combination of strong liquidity, low risk and PE well below the historic average. Perhaps our most non-consensus underweight is Taiwan, which almost every investor has got enthusiastic about after the KMT’s victory in the parliamentary election and Ma Ying-jeou’s election as president. We fear that cross-straits negotiations may not progress as fast as many expect. Moreover, Taiwan is the most cyclical market in Asia and its two main sectors, banks and technology (72% of market cap), are unattractive, although we do like retailers, construction, and chemical stocks. We stay underweight Japan: the economy is probably already in recession, and earnings are likely to fall this fiscal year because of the strong yen. We have lowered Australia to underweight from neutral: it may not prove as defensive this time as traditionally since it is very dependent on commodities, has a high weighting of banks in the index, and a very hawkish central bank. We stay underweight the two riskiest Asean markets, Indonesia and Philippines, both of which could have emergent inflation problems. We have lowered India to neutral, since valuations have not yet derated as much as the rest of the region, earnings forecasts (currently 20%) are likely to be revised down, and the election in H2 will cause jitters. Sector calls Stick to quality blue-chips We want to stick mainly to quality blue-chip names in the twin Asia structural growth themes of (1) consumption and (2) infrastructure. Many of these names sold off heavily in Q1, partly because they were heavily owned by foreigners, and partly because they had simply got too expensive in late 2007. Sectors such as Chinese telecoms or retailers underperformed hugely in Q1, which has brought valuations down Key country and sector recommended weights Financials Industrials IT Cons Discretionary Materials Telecoms Energy Cons Staples Utilities Health Care UNDER UNDER UNDER UNDER NEUTRAL OVER NEUTRAL OVER NEUTRAL OVER Japan UNDER UNDER UNDER UNDER OVER OVER OVER Australia UNDER UNDER UNDER UNDER OVER China OVER UNDER UNDER UNDER OVER OVER OVER Korea OVER UNDER UNDER OVER OVER OVER OVER OVER Taiwan UNDER UNDER UNDER UNDER OVER OVER OVER HK NEUTRAL OVER UNDER UNDER OVER UNDER India NEUTRAL UNDER OVER UNDER OVER OVER OVER UNDER Singapore OVER UNDER OVER OVER Malaysia OVER OVER OVER OVER Thailand OVER OVER OVER OVER OVER OVER Indonesia UNDER OVER NZ UNDER Philippines UNDER Pakistan UNDER Vietnam OFF-BMK OVER Source: HSBC 4 Equity Strategy Asia Pacific Second Quarter 2008 ab c to reasonable levels again. But the long-term growth stories have not been damaged. Mobile subscriber growth in China, for example, will not be dented even if the US goes into recession. The advantage of this sector allocation strategy is that it should be fairly defensive in the event of further market turmoil, but still partake in the ongoing Asian growth story over the long term and even perform well in the early stage of a market rebound. Specifically, we like consumer-related sectors, such as retailers and food producers, particularly in India, China and Korea. Healthcare offers a perfect combination (for the current market) of defensiveness and structural growth, aided by ageing populations and improving technology. We like pharmaceutical companies in Korea and Japan, but not in India. We continue to favour telecoms, where the structural growth story continues in India, China and some Asean markets like Indonesia and where valuations, which were stretched three months ago, are now attractive again. We like infrastructure stocks, since in many Asian countries (Thailand, Korea, Taiwan, India, China) political considerations will lead to a boost in government spending. For similar reasons, we like steel – perhaps our most contrarian call – because continuing demand from emerging markets means that producers should to be able to raise prices to more than offset the rise in raw materials costs. Sectors we would avoid include: technology (too exposed to US consumption, with earnings expectations that have just started to be cut sharply); financials (which we lower to underweight from neutral, since in many countries NPLs are rising, net margins are falling, and more surprise losses in overseas securities investment are possible), and cyclical exporters (because of the risk of further global economic weakness). We have cut energy to underweight from neutral because, though crude oil prices may stay high, governments’ moves to keep retail energy prices down will hurt profits since refiners may not be fully compensated. We are also cautious on resources (neutral) since we see metals prices being only mixed over the next few months. Stock picks For high-conviction buy ideas, too, our focus is on quality, blue-chip stocks, which are well positioned to benefit from Asia’s long-term structural growth story but which will not suffer too much if markets remain tricky. Many saw share prices drop in Q1 and now represent excellent value. For example, we include two quality telecoms companies – China Mobile and Singapore Telecoms – as well as companies that will benefit from consumption growth in China and Korea (respectively, New World, Maruti Suzuki and KT&G). BHEL is a play on Indian infrastructure. Our choices are mostly fairly defensive – although we leaven this with the inclusion of Posco and Nanya Plastics. With markets having fallen so far, it is harder to find clear sell ideas than it was a quarter ago. We accordingly delete China Life and Angang Steel from last Quarterly’s list (both have fallen substantially over the past three months). We replace them with two stocks that are still too expensive after previously over-hyped expectations: Nalco and Eva Airlines. 5 Equity Strategy Asia Pacific Second Quarter 2008 ab c HSBC’s top 10 high-conviction buy ideas Code Name Country/ region Sector HSBC rating Upside to target price (%) Price (local curr) 1 Apr Market cap (USDm) 941 HK CHINA MOBILE LTD CH Telecoms Overweight (V) 25.7 117.70 (HKD) 302,769 3328 HK BANK OF COMMUNICATIONS CO-H CH Financials Overweight (V) 22.0 9.26 (HKD) 27,422 825 HK NEW WORLD DEPT STORE CHINA CH Consumer Overweight (V) 39.1 8.84 (HKD) 1,914 BHEL IN BHARAT HEAVY ELECTRICALS IN Industrials Overweight (V) 71.8 1,892.20 (INR) 23,087 MSIL IN MARUTI SUZUKI INDIA LTD IN Autos Overweight 50.2 815.75 (INR) 5,874 000640 KS DONG-A PHARMACEUTICAL CO LTD KR Healthcare Overweight 19.4 107,000.00 (KRW) 1,115 033780 KS KT&G CORP KR Consumer Overweight 25.2 77,000.00 (KRW) 11,015 005490 KS POSCO KR Materials Overweight 49.6 468,000.00 (KRW) 41,471 ST SP SINGAPORE TELECOMMUNICATIONS SG Telecoms Overweight 14.4 3.96 (SGD) 45,738 1303 TT NANYA PLASTICS TW Materials Overweight 46.3 73.80 (TWD) 18,578 Source: HSBC Top sell ideas Code Name Country/ region Sector HSBC rating Upside to target price (%) Price (local curr) 1 Apr Market cap (USDm) NACL IN NATIONAL ALUMINIUM CO LTD IN Metals Underweight (V) -22.5 462.10 (INR) 7416 2618 TT EVA AIRWAYS CORP TW Transportation Underweight -20.9 18.80 (TWD) 2,429 Source: HSBC 6 Equity Strategy Asia Pacific Second Quarter 2008 ab c Investment strategy 7 What kind of bear? 7 Earnings 18 No big downward revision yet 18 Valuation 20 Massive derating 20 Supply and Demand 22 Massive foreign selling 22 Politics and risk 24 Attention shifts to India, Japan 24 Country profiles 27 Japan (underweight) 28 Gloomy and depressing 28 Australia (underweight) 32 Higher rates, lower growth 32 Korea (overweight) 36 Attractive – despite the cycle 36 China (overweight) 40 Long-term value emerges 40 Taiwan (underweight) 44 Excessive expectations 44 Hong Kong (neutral) 48 Negative real rates to help 48 India (neutral) 52 Hold on 52 ASEAN (overweight) 56 Interesting opportunities 56 Sectors & Stocks 64 Focus on quality 64 Quantitative scorecards 68 Top stock picks 72 What to buy – and what not 72 Appendix 86 Disclosure appendix 88 Disclaimer 92 Contents 7 Equity Strategy Asia Pacific Second Quarter 2008 ab c What kind of bear? “In theory, there is no difference between theory and practice. In practice, there is.” Yogi Berra The first quarter was a peculiar one for Asian stocks. Economic fundamentals continued to look strong (with average exports, for example, still growing 12% y-o-y); earnings results for 2007 came in in line with expectations at 21%; and forecasts for 2008 earnings growth have stayed fairly steady. Yet, MSCI Asia ex Japan fell 13% in dollar terms over the quarter (15% in local currency terms) and the forward PE ratio derated from 15.6x at the end of last year to 12.1x at the lowest point in March. Investment strategy  It seems fairly clear that we are in a new world: a bear market  But what sort of bear is harder to tell. What further consequences of the credit crunch will emerge? Will the US recession be short or drawn-out, shallow or nasty? How resilient will Asian growth, particularly earnings growth, be?  From an investor’s point-of-view, this may not matter. In almost any bear market scenario, investors should either (1) trade the ups and downs, or (2) stick to quality stocks with good long-term growth prospects, some of which are cheap again 1. MSCI Asia-Pacific and MSCI Asia ex Japan (in dollars) vs MSCI World 80 100 120 140 160 180 200 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Asia ex Japan rel to MSCI World Asia Pac rel to MSCI World Source: HSBC, Bloomberg 8 Equity Strategy Asia Pacific Second Quarter 2008 ab c The theory of economic decoupling therefore looks to have some validity but, in practice, global risk aversion has meant that international investors have pulled significant amounts of money out of Asia (USD39bn in January-March in the eight markets that provide data – which do not include China or Hong Kong). With Asia being a higher beta region than more developed markets, it fell further – the US was down 10% and Europe 11%. After a period of such shocks, it seems highly unlikely, in our view, that markets will return to normality smoothly. We probably have to accept that the bull market which began in April 2003 (or, some might argue, September 2001) is over. Through most of this period, economic growth in Asia accelerated, earnings rose steadily, and valuation multiples expanded (see Chart 2). Stock market corrections were treated as opportunities to buy. Bad news was generally shrugged off. International investors increased allocations to emerging markets; domestic retail investors in many countries discovered the joys of equity investment for the first time. Investors were happy to take more risk: fund managers who were too cautious (with too much cash or too little leverage) underperformed. 2. Prospective PE and absolute EPS for MSCI Asia ex-Japan 0 10 20 30 40 50 02 03 04 05 06 07 08 0 5 10 15 20 EPS PE (RHS) Source: HSBC, Datastream, IBES That world is over. For the next few quarters, fear will predominate over greed. Investors will worry about how much the US (and, by extension, the global) economy will slow, and about how long the side-effects of the dysfunctional credit markets will continue and where they will emerge next. That means that volatility (which has risen to 30-40% from the 10-15% level at the start of 2007, see Chart 3) will continue to be high, and the upside for the market will be, at best, limited compared to the past few years. 3. Average 10-day historic volatility of Asia Pacific indexes 0 10 20 30 40 50 60 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Av erage Source: HSBC, Bloomberg This does not necessarily mean, however, that equity returns will be disastrous. We do not believe the most pessimistic scenarios which suggest that credit-related losses will reach 5% or 10% of US GDP (i.e. USD600bn-1.3trn), triggering the worst recession since World War Two. The US authorities have reacted remarkably quickly to address the problems. We expect, for example, that the US Fed will cut rates to 1% by early 2009. Moreover, HSBC’s economists look for US growth to slow only moderately to 1.5% this year and 1.2% next – a double-dip “W- shaped” pattern – but to avoid a technical recession. In Asia, growth is likely to slip a little too but nonetheless remain impressive: we forecast overall real GDP growth for Asia ex Japan to slow to 7.8% this year and 7.8% again in 2009, down from 9.1% in 2007 (see HSBC’s Q2 Asian Economics Quarter: The gathering storm for details). [...]... growth 20 07 20 08 20 09 % 80% Australia China 40 30 20 -20 % 10 -40% 0 -60% 1994 1996 1998 20 00 20 02 2004 20 06 20 08 EPS growth MSCI AEJ index y/y (RHS) 39.1 14.6 -22 .9 20 .2 15.4 24 .4 55.3 6.7 5.6 18.1 9.0 14.6 16.7 9.1 14.3 43.0 3 .2 -9 .2 13.0 11.4 18.8 Singapore Taiwan 0% 10.9 16.0 Malaysia Philippines 20 % 8 .2 21.4 Indonesia Japan Korea 40% 7 .2 28.6 Hong Kong India 60% 20 .5 29 .9 -4.5 6.6 12. 4 10.6 -29 .4 20 .8... 16.4 7.7 12. 2 Thailand Asia ex-Japan Asia Pacific Source: Bloomberg, I/B/E/S, HSBC Source: I/B/E/S, HSBC 3 Earnings momentum – Asia ex Japan 4 Upgrades as % of total earnings revisions – Asia Pacific 40 70 65 60 55 50 45 40 35 30 25 20 20 08 20 07 -30 20 06 Upgrades as % ot total 20 00 -20 20 05 20 08 20 07 20 06 20 05 20 04 20 03 20 02 2001 20 00 1999 1998 1997 1996 1995 -10 1994 0 20 04 10 20 03 20 20 02 30 20 01 Asia... mutual funds 18,000 1000 20 08 23 .3 53.1 20 .7 24 .3 19.5 10.1 3.1 6.1 0.6 10.1 158.0 177.6 20 07 30.8 69.0 20 .2 12. 2 56.6 11.3 1.1 5 .2 2.9 11.3 1 32. 1 21 9.6 20 06 15.5 28 .5 10.1 10.1 43.9 15.8 1.3 3.7 1 .2 15.8 86.0 145.3 (Ybn) 300 20 05 AU CH HK IN JP KR MY SG TH TW AEJ AP 08 (ann) v 07 20 04 20 07 20 08 YTD 20 03 20 06 20 02 2005 20 01 (USD bn) Won Bln INR bn 800 13,000 600 400 8,000 20 0 0 3,000 -20 0 Net inflow into... 32. 4 -50% - 62% Australia 12. 0 14.9 -19% 15 .2 -21 % Asia ex-Japan Asia Pacific 12. 4 12. 5 12. 4 16.4 1% -23 % 14.7 26 .4 -15% -53% 16 10 8 20 01 20 02 2003 20 04 20 05 20 06 20 07 20 08 Source: Bloomberg, I/B/E/S, HSBC Source: Bloomberg, I/B/E/S, HSBC 3 20 08 PE versus average EPS growth 20 08-9 4 PB versus ROE/COE 4.5 PEG>1 20 4.0 18 Fwd PE ID PBR 16 3.5 IN HK IN 14 3.0 MY SG JP AP TW AU PH AEJ 12 KR 10 ID CH 2. 5... Source: CEIC, HSBC 20 08 20 07 20 06 20 05 20 04 20 03 20 02 2008 20 07 20 06 20 05 20 04 20 03 20 02 2001 20 01 -400 -2, 000 Mutual Funds Net Flow Source: CEIC, HSBC 23 abc Equity Strategy Asia Pacific Second Quarter 20 08 Politics and risk Elections in Korea, Taiwan, and Thailand were market-positive Elections in India and Japan later this year are harder to call We look for credit risk to bottom out in Q2 Attention... 93.0 7.0 10 6 62. 5 50 9.6 21 .0 34.1 37.5 9.0 10 6 61.5 50 10.0 1 .2 4.5 5.1 13.0 12 6 26 .7 40 11.0 7.5 39.0 48.7 12. 0 15 6 19 .2 40 10.5 22 .2 47.0 54 .2 10.0 10 6 47 .2 45 11.0 14.9 25 .9 28 .0 6.0 10 6 57.7 50 9.5 320 .3 659 .2 744.6 6.0 10 6 48.6 50 9.0 20 .1 61.8 67.4 6.0 10 4 32. 5 40 8.0 13.0 40.7 48.9 15.0 20 6 32. 0 40 15.0 10.6 30.9 33.1 10.0 10 6 34.4 45 12. 5 71 .2 258.1 29 3.7 15.0 15 6 27 .6 45 15.0 Result... 20 08 1 Cumulative net buying by foreign investors since 20 00 2 Foreign net buying by markets 20 07 Foreign investors' net investment in Asian equity markets 400 Japan Asia ex-Japan 350 300 $ bn 25 0 20 0 150 100 50 0 20 08 20 07 20 06 20 05 20 04 20 03 20 02 2001 20 00 -50 ($bn) JP Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 20 07 Jan-08 Feb-08 Mar-08 20 08 YTD TW KR TH IN ID -2. 2 12. 2... -2. 2 12. 2 6 .2 13.8 6.6 -8.9 -4.3 2. 0 -3.1 -2. 9 43.5 -3.3 -3.5 - 12. 2 -19.0 -3.1 2. 4 1.3 5.5 -0.3 -5 .2 1.9 1.6 -4.6 0.8 2. 1 -1.0 3.1 -1.7 0.4 -1.1 2. 9 0 .2 -3.8 -5.3 -9.3 -2. 1 -2. 3 -7.3 -2. 6 -29 .4 -9.0 -2. 1 -3.9 -15.0 0.0 0.4 0.7 0.9 1.0 -1.1 0.1 0.4 -1 .2 -0.5 1.6 -1 .2 1.0 -0.4 -0.6 0.3 1.3 1.1 1.8 4.6 -1.8 4.7 4.4 -1 .2 1 .2 17.8 -4.4 1 .2 -0.7 -3.9 0.3 0.7 0.3 0.4 0.4 0.6 0.3 0.1 0.1 0.0 3 .2 0.1 0 .2 -0.4 -0.1... Pacific Second Quarter 20 08 sterilising currency intervention as US rates fall below those in Asia 9 Cumulative net flows into Asian equities 350 Japan 300 8 Average CPI inflation in Asia ex Japan Asia ex -Japan 25 0 14 $ bn 20 0 12 150 100 10 50 8 0 6 20 08 20 07 20 06 20 05 20 04 20 03 2 20 02 2000 4 20 01 -50 Source: HSBC, Bloomberg 0 -2 97 98 99 00 01 02 03 04 05 06 07 08 Source: HSBC, Bloomberg Foreign... B+ BB VN BB S e p -0 6 20 07 20 05 20 03 20 01 1999 1997 1995 1993 14.5 Source: Bloomberg, HSBC Source: Bloomberg 3 Spread on Asian USD bonds vs MSCI Asia ex Japan 4 Government approval ratings 700 650 600 550 500 450 400 350 300 25 0 20 0 150 100 80 150 60 20 0 25 0 300 350 20 01 20 02 2003 20 04 20 05 20 06 20 07 20 08 MSCI Asia ex J ADBI spread (RHS, inverse) Source: Bloomberg, HSBC 40 20 0 Jan-05 Jul-05 Jan-06 . 150 25 0 350 450 550 650 20 00 20 01 20 02 2003 20 04 20 05 20 06 20 07 20 08 50 100 150 20 0 25 0 300 350 400 MSCI Asia ex J ADBI spread (RHS, inv erse) Source: HSBC, . level 3 /27 /20 08 Target end 20 08 Upside Old end- 20 08 target Target end 20 09 Upside vs 20 08 Old end- 20 09 target Japan TPX Index 1 ,22 6 1,150 -6 .2% 1,500