UBS smiles at stocks from some Asian countries and expects high market volatility

The Swiss firm outlined its investment views and tactical asset allocations in a June report. Valuations in some markets, such as Chinese equities, appear to be pricing in a lot of the headwinds currently blowing, he said.

UBS says it likes Indonesian, Thai and Chinese stocks for a variety of reasons, as it has outlined its views on investing in Asia and argued that it prefers value to growth stocks.

One of the world’s largest wealth management firms said it expects market volatility “to remain elevated in the near term until the market finds more conviction on the momentum of the market.” inflation, which makes directional betting very risky”.

Explaining its country picks, UBS said: “Indonesia is a net exporter of commodities, with an improving current account. And more importantly, its 1Q22 corporate earnings were among the strongest in Asian markets. Thailand, macro-wise, is at higher inflation risk, but its stock market is heavily affected by energy and materials companies, making it an inflationary player in Asia.

“China faces significant headwinds to economic growth, but the current market valuation reflects most of them,” he continued.

The bank argued that the MSCI China index is already below the March 2020 Covid-19 low, but MSCI India, MSCI Taiwan and MSCI Korea are still 80-100% above their March lows. 2020, which gives Chinese stocks more opportunities. terms. “If China’s economic growth continues to disappoint, we expect a similar or more decline in Asian peers, which are still sitting on strong gains from 2020 lows. For example, since the start of the shutdowns of Shanghai, MSCI China outperformed MSCI Asia ex-Japan. And if more supportive measures are deployed to support economic growth, we believe China has more room to rebound compared to its regional peers,” UBS said.

With respect to other Asian jurisdictions, UBS said it believes “the benefit to [South] Korean and Malaysian stocks are limited. Korea is sensitive to both US and Chinese growth, and Malaysian corporate earnings momentum lags that of their Asian counterparts.”

Asia’s largest economy, China, is still grappling with its tough anti-pandemic policy.

“There is no quick exit from Beijing’s zero Covid policy. Economic pressure – and stock price volatility – from mobility curbs may therefore persist. As a result, we have reduced our growth forecast for the Chinese GDP this year,” said Mark Haefele, Chief Investment Officer, Global Wealth Management, UBS, in a note co-authored with Min Lan Tan, Chief Investment Officer, Asia-Pacific, GWM.

The firm has lowered its earnings forecast for the region. “Coupled with our latest downward revisions to exchange rates for major Asian currencies; these adjustments bring our earnings growth estimate in Asia to 4.9% in 2022,” he said.

UBS said the book valuation of Asian equities excluding Japan had fallen to about 1.3 times, close to levels seen near the eruption of the pandemic crisis. The region’s forward price/earnings valuation has fallen to 12 times, implying a discount of around 15% to the 15-year average.

The bank noted that the beneficiaries of stimulus policies, such as industrials, financial services and materials, are the cheapest sectors relative to their own historical means. The computer sector is trading at a discount in the mid-teens from its average, mainly thanks to the semiconductor industry which more than doubled its profits from 2019 to 2021.

However, not all sectors are trading below their historical averages, UBS continued. Forward price-to-earnings ratios for communication services, healthcare and consumer discretionary are still “relatively high”, the company said, notably due to a growing share of names in the internet, electric vehicles and biotechnology that have not yet made a profit.

Valuations in Japan
UBS took a cautious, albeit slightly bullish, stance on Japanese equities.

“Stock market valuations (P/E ratios) have fallen this year, while dividend yields have risen to 2.3% on average. The Nikkei 225 P/E ratio was near a 10-year high in March 2021; it is now near a 10-year low. We believe the downside from here will be limited by the low P/E ratio and strong earnings. Given low valuations, strong earnings and high dividend yields, we expect stock prices to rebound in some sectors,” he said.

As for fixed income, UBS said it prefers higher-quality Asian securities offering a yield of 4% and durations no longer than five years. It is “very selective” in high-yield debt, favoring specific issuers in areas such as commodities, benefiting from the strength in commodity prices.

The bank said Asian currencies had fallen 4.6% since January amid heightened uncertainty over global growth, ongoing mobility restrictions in China and the threat of new oil and gas sanctions. Russians. UBS said Asian currencies could, however, benefit from the potential spike in the US dollar in the second half of 2022. rupee), and PHP (Philippine Peso).Commodity currencies should reverse recent steep losses once the global growth outlook improves, we like AUD (Australian Dollar), NZD (Dollar New Zealand) and the MYR (Malaysian Ringgit),” he added.

Comments are closed.