Asian equities offer gold mine for stock watchers

Asian equities offer gold mine for stock watchers
The Philippine Stock Exchange index is up 28 per cent since last Christmas.

dubai - Ample reason to be bullish on Pakistan, India and the Philippines



By Matein Khalid

Published: Sun 24 Jul 2016, 4:02 PM

Last updated: Sun 24 Jul 2016, 6:05 PM

Asian equities have been a gold mine for prescient stock pickers and macro wave surfers in 2016. Pakistan is the best-performing stock market in Asia once again. Now that the military has defeated Taleban terrorists in North Waziristan, the state bank hard currency reserves have risen above $20 billion, the IMF loan has stabilised the rupee and China's Politburo has decided to invest $46 billion in the economic corridor, there is no doubt that Pakistan is in the mature stages of a secular bull market that began in 2011 and delivered 25 per cent US dollar annual returns to those who positioned wisely on the Karachi stock exchange, which itself has got interest from Istanbul and Shanghai for its IPO. In the past four months alone, Habib Bank shares I profiled in this column are up a staggering 35 per cent. Crisis, what crisis?

I believe demographics determine the destiny of the secular bull market, the reason I have been so bullish on the Philippines and India. From consumer staples (Nestle India, ITC), media (Zee Entertainment), banking (ICICI Bank, HDFC) and autos (Maruti Suzuki), all delivered 20 per cent-plus returns for investors who could time their trading ranges and news flow. Unlike Pakistan, India is not cheap at 16 times forward earnings but it is the world's consensus "growth" emerging market, thanks to the stellar RoE/EPS growth as well as the momentum of the BJP's reformist agenda. The ICICI Pru IPO will create the only major listed insurer on Dalal Street and investors should turn cartwheels for a firm allotment. Even HDFC could spin off its life subsidiary. The crackdown on corrupt, black money financed property deals in both India and Pakistan mean a sharp fall in urban home prices but a longer term flow of funds in the stock markets of Karachi and Mumbai.

The election of Rodrigo Duterte as Benigno Aquino's successor and head of state in the Philippines has not killed the stock market rally in Manila. The stock exchange index is up 28 per cent since last Christmas despite its pre-election swoon and rising geopolitical tensions with China. My recommendation to invest in property developers Megaworld and Ayala Land were both highly-profitable for UAE investors.

I was wrong about Thailand since I seriously doubted that the military regime which overthrew the elected government of Yingluck Shinwatra would be able to regain the confidence of global investors and heal the Red Shirt/Yellow Shirt rift in Thai society at a time when the octogenarian King Bhumibol, the ninth Rama of the Chakri dynasty, is in ill health. Yet Bangkok's SET index is up a decent 16 per cent in 2016. While the last decade was a disaster for the Kingdom of Smiles (September 2016 will mark the 10th anniversary of Thaksin's overthrew in a military coup), General Prayuth has unquestionably stabilised the political and economic status quo.

South Korea is another country that has not performed, though we caught the latest uptick in the shares of Samsung Electronics. President Park Geun-hye's "creative economy" rhetoric was a disappointment, even though she is the daughter of Major-General Park, who forged the economic miracle on the Han River. The latest threat from North Korea, Brexit/Chinese slowdown impact on world trade and the central bank's slashed 2016 growth forecast to only 2.7 per cent is not a good omen for the Kospi bulls. An economy whose chaebol conglomerates hoard $2 trillion in cash on corporate balance sheets simply cannot kick-start capex led growth or increase returns to shareholders.

The Taiwan fund has had a profitable bull run since June and bellwether megacap Taiwan Semiconductor is up 25 per cent (in greenback, not funny money!) in 2016. The financial markets are no longer nervous that incoming President Tsai Ing-wen will mismanage cross strait relations. Taiwan trades at 13 times forward earnings, one sigma below its post-2009 valuation multiple average of 16 times. Apple has asked its Taiwan suppliers to produce 72-78 million iPhone 7s by year-end. There is serious money to be made in Apple ecosystem in the "renegade province"!

Nigeria is not an Asian country - at least not yet. However, I am horrified by the free-fall in the Nigerian naira, down 12 per cent against the dollar in July alone. The short Nigeria index fund was a licence to print money since it is down 40 per cent in 2016. Now that is a macro trade even Magic Planet can applaud!

The writer is a global equities strategist and fund manager. He can be contacted at: matein@emirates.net.ae


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