- Despite the challenging global environment this year, we have been optimistic on Asia ex-Japan and Emerging market (EM) equities. However, in light of our recent downgrade of China equities, we are downgrading both regions.
- We have turned negative on China equities given the new economic regime and rising geopolitical risk. Given China’s economic and equity linkage to the EM universe, a downshift in China’s growth outlook will have significant implications for the region.
- We have also recently downgraded multiple key Asian markets due to a worsening outlook at a country level. We also find lesser upside potential for these two regions after revising down the respective earnings estimates and fair PE ratio.
- As a result, we now find the risk-reward for Asia ex-Japan and EM equities to be less attractive and downgrade both regions from 4.0 Stars “Very Attractive” to 2.5 Stars “Neutral” and 3.0 Stars “Attractive respectively.
- We suggest cutting portfolio exposure to Asia ex-Japan and EM equities if investors are overweight or have a heavy position within the portfolio.
1. Turning negative on Chinese equities. A downshift in China’s outlook impacts the region.
Chart 1: China has an overwhelming presence in both MSCI Asia ex-Japan and MSCI EM index
2. Multiple country-level downgrades justify a shift in regional view
Table 1: Summary of recent changes in our EM equity outlook
3. Reduced upside potential in both Asian ex-Japan and EM equities
Chart 2: MSCI Asia ex-Japan EPS forecast
Table 2: MSCI Asia ex-Japan upside forecast
|
Asia (MSCI Asia ex-Japan Index) |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
|
PE ratio (X) |
11.9 |
12.8 |
13.4 |
12.0 |
|
Projected earnings growth (YoY %) |
26.3% |
-7.2% |
-4.7% |
12.4% |
|
Projected Earnings Per Share (EPS) |
52.8 |
49.0 |
46.7 |
52.5 |
|
Target fair price (Based on 13.5X Fair PE ratio) |
- |
- |
- |
709 |
|
Potential upside (%) |
- |
- |
- |
12.9% |
|
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 1 Dec 2022. |
||||
Chart 3: MSCI Emerging Market index EPS forecast
Table 3: MSCI Emerging Market index upside forecast
|
EM (MSCI Emerging Market Index) |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
|
PE ratio (X) |
10.4 |
11.4 |
12.0 |
10.5 |
|
Projected earnings growth (YoY %) |
26.3% |
-9.1% |
-4.4% |
14.4% |
|
Projected Earnings Per Share (EPS) |
94.1 |
85.5 |
81.7 |
93.5 |
|
Target fair price (Based on 12.5X Fair PE ratio) |
- |
- |
- |
1,169 |
|
Potential upside (%) |
- |
- |
- |
19.5% |
|
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 1 Dec 2022. |
||||
Downgrade Asia ex-Japan and EM equities from 4.0 stars to 2.5 and 3.0 stars respectively
Table 4: Recommended products
|
Market |
Recommended Product |
|
Global bonds |
|
|
Short duration bonds |
|
|
US (Value-focused) |
|
|
Japan |
|
|
LATAM |
|
|
ASEAN |
|
|
Commodity-linked equities |
The Research Team is part of iFAST Financial Pte Ltd
All materials and contents found in this site are strictly for general circulation and informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the funds or products found/identified in this site. While iFAST Financial Pte Ltd ("IFPL") has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies and typographical errors. Any opinion or estimate contained in this report is made on a general basis and neither IFPL nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objective, financial situation or particular need of any user or reader, any specific person or group of persons. You should consider carefully if the products you are going to purchase are suitable for your investment objective, investment experience, risk tolerance and other personal circumstances. If you are uncertain about the suitability of the investment product, please seek advice from a financial adviser, before making a decision to purchase the investment product. Past performance is not indicative of future performance. The value of the investment products and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. In respect of any matters arising from, or in connection with the said research analyses or research reports, recipients of the report are to contact IFPL at 10 Collyer Quay, #26-01 Ocean Financial Centre Building, Singapore 049315, or by telephone at +65 6557 2853. Where the report contains research analyses or research reports from a foreign research house and if the recipient of such research analyses or research reports is not an accredited investor, expert investor, institutional investor or an ex-accredited investor, IFPL accepts legal responsibility for the contents of such analyses or reports to such persons only to the extent as required by law. Please note that only certain security(ies) herein are available to all investors, while the rest are only available for certain persons to invest in, such as Accredited Investors (as defined in the Securities and Futures Act) or one who invests at least S$200,000 (or its equivalent currency) per transaction. To qualify as an Accredited Investor, one needs to submit a declaration form and certain relevant supporting documents, according to iFAST’s prevailing policies and procedures.
Please read our full disclaimers on the website at ( https://secure.fundsupermart.com/fsmone/policies/328125/investment-account-terms-&-conditions).
iFAST Financial Pte Ltd (IFPL) (registered address: 10 Collyer Quay #26-01 Ocean Financial Centre Singapore 049315, Telephone: 6557 2000) holds the Financial Advisers Licence issued by the Monetary Authority of Singapore ('MAS') to conduct regulated activities of advising on securities, marketing of collective investment schemes and arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance and the Capital Markets Services Licence issued by the MAS to conduct regulated activities of dealing in securities and providing custodial services for securities. While IFPL has made every effort to ensure the independence of the report's contents, IFPL's nature of business is such that IFPL and its connected and associated entities together with their respective directors, officers and staff may be involved in providing dealing or investment-related services in the abovementioned securities, and have taken or may take positions in the securities mentioned in this report, and may also act as the principal for any buy or sell trades.