Underpinned by recovering economies, earnings should boom in 2021. We forecast 30% earning per share growth in Asia ex Japan, 5% ahead of the consensus, on the back of strong revenues and margins, the research said.
The equities markets globally have been growing following the hopes of a Covid vaccine. Also investors that had invested in the US dollar as a safe bet during the peak of the pandemic are now exiting the currency. Most global investors have been selling gold and the USD and seem to be rushing towards equities.
“We are much less bullish on equity returns – valuations at 15.8x 2021 EPS are already rich. Even taking into account low rates and bond yields our models suggest a fair value forward PE of 13.8x by end next year. With 12% forecast EPS growth in 2022 (still 2x estimated nominal GDP growth), that gives us only 5-6% upside by end next year. Our Japan models point to similar returns over the year. Our end 2021 Index targets are 840 for MSCI Asia ex Japan and 1850 for TOPIX,” Niall MacLeod, Strategist, UBS Securities Asia said.
The research added that the some of the countries including Singapore, Indonesia and Malaysia would be able to beat China and Taiwan in 2021 equities growth. “In 2020 markets that saw the biggest negative delta on GDP growth were among the biggest underperformers. We expect this to reverse in 2021 as growth recovers more in south Asia than north Asia with relative valuations more attractive in south than north as well. We are underweight China and Taiwan – both expensive and with less recovery upside than south Asia. Tactically we are still overweight Korea and Japan for now to capture cyclical recovery but are warming to ASEAN. We add Indonesia and Philippines to our existing overweight in Singapore, with Thailand, India, and Malaysia, neutral,” the research said.
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