- Asian export numbers rebounded strongly in September, many markets saw reading rebounding back to positive growth. The rebound was broad-based and most beat consensus expectations, a strong indication that Asia’s economic recovery is starting to accelerate.
- Underpinning recent months’ positive exports growth reading are (i) the revitalization of China’s domestic demand and (ii) robust global electronic demand. The global electronic and Chinese demand have been remarkably resilient and will likely fuel the export strength in Asian markets moving ahead.
- With export growth leading the way, the stronger economic growth in Asia is likely to translate into further upward revisions in earnings in the Asian equities ahead.
- Supported by a robust double-digit earnings growth projected for the next two years, Asian equities are set to deliver a potential upside of 20% by end-2022, despite the elevated valuation now.
Chart 1: Asia ex Japan is the top-performing region this year so far and rightfully so.
Asia’s exports recovery quickly gathering steam
Exports growth has been a fundamental driver of economic advancement for the majority of Asian markets, contributing an outsized amount to GDP. While Asia’s exports growth contracted for most of 2Q and 3Q, since Covid-19 hit, September saw a wave of rebound back into growth.
Most Asia markets saw exports growth swinging back to positive (Chart 2) and beating consensus expectation in September. We believe such broad-based solid readings are a strong indication that Asia’s economic recovery is starting to accelerate.
Table 1: Exports growth numbers swinging back to positive in Sep for most Asian market
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of October 2020.
Underpinning recent months’ positive exports growth reading are i) the revitalization of China’s domestic demand and ii) robust global electronic demand.
Table 2: Indicators for China’s domestic demand rebounded firmly in Aug-Sep
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of October 2020.
Chart 2: Global electronics PMI rebounded sharply since March
Source: Refinitiv Datastream, HSBC. Data as of October 2020.
Export strength may lead to a higher GDP bounce in 4Q but Covid-19 still a headwind
Chart 3: Leading indicators suggest Asia exports could improve in coming months
Asia’s domestic demand is finally restarting
Leading indicators, positive data beat and GDP growth points to improving growth momentum
Table 3: Improving manufacturing PMI for Asia, one of the leading indicators, pointing to a better recovery momentum
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of October 2020.
Chart 4: More and more of Asia’s economic data are beating consensus expectations
Corporate earnings have improved since 1H20
Chart 5: Earnings revision for Asian equities are starting to turn positive
Earnings growth prospect still ahead of global peers
Chart 6: Asian equities are projected to post double-digits year-on-year earnings growth in the next two years ahead.
Bright Outlook for Asian (ex Japan) equities ahead
Chart 7: Valuations of Asian equities have stretched into elevated levels this year, but so has the rest of the major equity markets.
Table 4: Asian equities are set to deliver a potential upside of 20% by end-2022.
|
Asia ex Japan (MXASJ Index) |
FY2019 |
FY2020 |
FY2021 |
FY2022 |
|
PE Ratio (X) |
16.6 |
18.3 |
14.6 |
12.6 |
|
Expected Earnings Growth (YoY %) |
-10.6% |
-9.0% |
25.5% |
15.8% |
|
Earnings Per Share (EPS) |
44.8 |
40.7 |
51.1 |
59.2 |
|
Projected Fair Price (Based on 15.0X Fair PE Ratio) |
- |
- |
- |
890.0 |
|
Potential Upside from Today (%) |
- |
- |
- |
+20.0% |
|
Source: Bloomberg Finance L.P., iFAST estimates. Data as of Oct 2020. |
||||
Table 5: Product Suggestions
|
Actively Managed Funds |
ETF |
|
· FSSA Dividend Advantage A QDIS SGD |
Chart 8: Robust earnings growth to boost Asian equities prices ahead
The Research Team is part of iFAST Financial Pte Ltd.
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