Asian equities in 2018

Transcription

1 Asian equities in 2018 Select 2018 June 2018 Medha Samant Investment Director, Asian Equities For investment professional use only and not for general public distribution.

2 Important information The value of investments can go down as well as up and investors may not get back the amount invested. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. Past performance is not a reliable indicator of future returns. 1 Asian equities in 2018

3 Asian market overview

4 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Fund flows Fund flows to Asia Pacific ex Japan (US$Bn) Fund flows to Developed Markets (US$Bn) Source: EPFR Global, Equity Funds Flow Database, Morgan Stanley. Data as of 16 May Asian equities in 2018

5 P/E (x) P/B (X) Attractive valuations for equities in Asia ex-japan PE ratio close to long-term average 30 PB ratio remains close to average Asia ex Japan Index (PE) Average +1 Stdev -1 Stdev Asia ex Japan Index (PB) Average +1 Stdev -1 Stdev Source: Thomson Reuters DataStream, 31 May PE ratio is Price to Earnings ratio and PB ratio is Price to Book value ratio. 4 Asian equities in 2018

6 China Hong Kong Korea Singapore Thailand Malaysia Taiwan Indonesia Philippines India Real Estate Energy Materials Technology Financials Industrials Staples Telcos Discretionary Utilities Health Care Sustained Asia ex-japan earnings revisions Asia ex Japan earnings upgrades Asia ex Japan Sectors EPS revisions over 12 months % 20% 10% 2018E consensus EPS revision % -10% -20% Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Asia ex Japan Countries EPS revisions over 12 months 20% 2018E consensus EPS revision 15% 10% 5% 0% -5% -10% EPS09E EPS10E EPS11E EPS12E EPS13E EPS14E EPS15E EPS16E EPS17E EPS18E Source: IBES Aggregate, Thomson Financials DataStream, 31 May These forecasts are not a reliable indicator of future performance. 5 Asian equities in 2018

7 US China trade war an unknown outcome Tariff and trade war news flow prompting uncertainty in the stock market. US-China trade war seems unlikely Both countries are key mutual trade partners, US not insulated. Bilateral negotiations, concessions likely middle path Trump announces $50bn in new tariffs on Chinese imports The world s two largest economies have taken a step closer to a trade war with the Trump administration on Friday unveiling new tariffs on $50bn in imports from China that will take effect within days. My great friendship with President Xi of China and our country s relationship with China are both very important to me, President Donald Trump said in a statement on Friday. Trade between our nations, however, has been very unfair, for a very long time. This situation is no longer sustainable. This material contains general information only, and should not be construed as a recommendation to buy or sell any security. Investors should note that the views expressed may no longer be current and may have already been acted upon. Source: Fidelity International, Thomson Reuters Datastream April Financial Times June Asian equities in 2018

8 Opportunities in China

9 Urban population (% of total) The importance of China s rising middle class China s increasing middle class Annual disposable income per capita distribution Rising urbanisation rate 90 3% 7% 15% 80 53% 20% % 50 37% 40 11% Low (<RMB 13K) Lower Middle (RMB 13K - 67K) Upper Middle (RMB 67K - 200K) High (>RMB 200K) 30 China UK US Source: EIU, November 2016, % of population, constant 2015 prices Source: Thomson Reuters, World Bank, Asian equities in 2018

10 China s Belt and Road initiative is gaining momentum Will all roads lead back to China? Source: AsiaOne, April Asian equities in 2018

11 China s IT companies are challenging global market leaders Annual sales volume of Huawei s smartphones Year Flagship Smartphone Models Selling Price for flagship models (in USD) Annual total sales volume (mn units) 2010 U ~ U ~ P1 349~ P6 Mate 349~429; 349~ P7 Mate 7 286~458; 407~ P8 Mate 8 301~458; 436~ P9 Mate 9 468~811; 499~1, P10 Mate ~ Reference to specific securities is for illustration only and should not be construed as a recommendation to buy or sell these securities. Investors should note that the views expressed may no longer be current and may have already been acted upon. Source: Company data, Morgan Stanley. 10 Asian equities in 2018

12 % What should investors focus on when it comes to investing in China? A different mindset and focus free cash flow yield and dividend yield Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Free Cash Flow Yield Dividend Yield Past performance is not indicative of future returns. Source: Fidelity International and Factset, July Data derived from a basket of Chinese stocks listed in China, HK and US. 11 Asian equities in 2018

13 Reforms in India

14 What to expect on economic reforms Big push towards affordable housing in rural and urban areas Strategic disinvestment in public sector companies (Air India, BEML, SAIL, etc.) Push for resolution of bad assets in the banking sector Focus on consolidation and execution 13 Asian equities in 2018

15 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Credit growth and private capex growth remains weak Bad asset problem close to resolution Weak credit growth 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Gross NPA Restrd SDR 5:25 S4A SR's Watchlist 14.9% 40% 35% 30% 25% 20% 15% 10% 5% 0% 10% Capacity utilisation rangebound Private sector capex recovery is delayed 76% 75% 74% 73% 72% 71% 70% 69% 68% Public sector capex to GDP Private sector capex to GDP Source: Thomson Reuters DataStream, RBI data, March Asian equities in 2018 Investors should note that the views expressed may no longer be current and may have already been acted upon.

16 Structural growth in ASEAN

17 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 ASEAN remain selective Improving fundamentals ASEAN s attractiveness vs. North Asia 140 Thailand economy is bottoming out, elections in Indonesia improving consumer sentiment, elections in Philippines government execution needed to drive infrastructure and consumption Malaysia signs of stability, post election adjustment 40 Price: North Asia rel. to ASEAN This material contains general information only, and should not be construed as a recommendation to buy or sell any security. Source: Fidelity International, Thomson Reuters Datastream, April Asian equities in 2018

18 Summary Asian markets have outperformed over the past 18 months. In the absence of major global shocks they should continue to do so: the momentum of the earnings cycle remains robust, valuations are only mid range and the opportunities for stock pickers are significant. The relative political landscape continues to reflect increasing instability in liberal western democracies and a combination of democratic reform and strong leadership in Asia. India and China follow different models, but progress in both has been compelling. Whilst nominal growth is strong the Chinese economy needs to rebalance: the evidence suggests that is exactly what is happening. India s weakness remains credit growth. The recent recapitalisation of India s public banks is a good start, but the banking system also needs proper rationalisation and reform. 17 Asian equities in 2018

19 Disclaimer This information must not be reproduced or circulated without prior permission. Fidelity International refers to the group of companies which form the global investment management organisation that provides information on products and services in designated jurisdictions outside of North America. This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Unless otherwise stated all products and services are provided by Fidelity International, and all views expressed are those of Fidelity International. Fidelity, Fidelity International, the Fidelity International logo and F symbol are registered trademarks of FIL Limited. FIL Limited assets and resources as at 31/12/ data is unaudited. Research professionals include both analysts and associates. This example uses assumed figures and is for illustrative purposes only. The Key Investor Information Document (KIID) is available in English and can be obtained from our website at or by calling The Prospectus may also be obtained from Fidelity. Fidelity Funds FF is an open-ended investment company (UCITS) established in Luxembourg with different classes of shares. The Authorised Corporate Director of Fidelity Investment Funds and Fidelity Investment Funds IV OEIC, and the Manager of Fidelity Unit Trusts is FIL Investment Services (UK) Limited. Please note Fidelity Unit Trusts are not registered for sale in Jersey or Guernsey. Holdings can vary from those in the index quoted. For this reason the comparison index is used for reference only. Data Source Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Barra. Inc. s analytics and data ( were used in the preparation of this document. Copyright 2017 BARRA, INC. All rights reserved. 18 Asian equities in 2018