The Asian markets have so far been a beneficiary of the weak US Dollar and low bond yield. As we head into the second half of 2017, how should investors allocate assets in the Asian markets? Here are five Asian markets highlighted in DBS Research’s report and how investors could allocate assets among these markets.
Philippines: Buying into the idea of infrastructure boom
The Philippines remains as one of the markets with the strongest economic growth. The Philippines market is supported by the macro global trend and strong domestic demand driven by its demographics.
While market valuation is not low, DBS Research continues to recommend for investors looking for growth to focus on the Philippines market.
The long-term view of the Philippines market will be lifted by spending on infrastructure. With GDP growth at 6.4 percent, it is the highest in the region and emerging markets.
Moving forward, Philippines is likely to be the fastest growing ASEAN economy in the following years. DBS Research recommends direct infrastructure players and indirect beneficiaries (i.e. banks, retail and property) of the infrastructure story.
Malaysia: Election year not the best for equities
As Malaysia heads into the general elections, there is empirical evidence that seems to suggest that the Malaysian market does not outperform in an election year.
In the past nine elections, the market has only outperformed the Asian region once. Foreign ownership is already high and there would unlikely be any election rally. Moreover, the market’s overall valuation seems to have peaked at 16.7x of earnings.
Nevertheless, one sector that DBS Research is still positive on among Malaysian equities is the banks, buoyed by a sustainable net interest margin trend.
Hong Kong/China: Accumulate on any weakness
Hong Kong and the Chinese markets are also highlighted by DBS Research as the overweight markets.
The outlook for equities as an asset class in China has improved against other asset classes. Recent macroeconomic data also points to the economy stabilising, which should drive interest among foreign investors.
Also, DBS Research believes that President Xi’s One Belt One Road initiative will also be a cornerstone to driving infrastructure projects and economic growth within the Chinese and Hong Kong market.
Speculative and hedging activities have been on the rise in the Hong Kong market as Hang Seng Index trades close to its two-year high.
Backed by favourable global demand, DBS Research opines that risk appetite for the Hong Kong market remains strong. Overall, DBS Research recommends accumulating MSCI China and HSI stocks upon any signs of weakness.
As China transits to a consumer and services based economy, investors should focus on the new economy stocks that have exposure to consumption and spending behaviour of the new tech-savvy millennials.
Singapore: Consolidating for now
The Straits Times Index (STI) managed to break through its 20-month high in May despite being in a consolidation mode. The Singapore market is largely supported by a buoyant merger & acquisition (M&A) sentiment and a global economic recovery.
Furthermore, the Singapore market is supported by inexpensive valuation. That being said, while DBS Research feels that there is still room for STI to rise further, it could face upward pressure in the near term.
Recommendation: Downgrade to Neutral