Morgan: Cut stock holdings in SE Asia
Morgan Stanley recommended "cheap" stocks in South Korea and China and advised reducing holdings in Southeast Asia after rallies drove indexes in Indonesia, the Philippines and Malaysia to record highs. "Korea and China are examples of markets that are not in any way expensive," Jonathan Garner, Morgan Stanley's Hong Kong-based chief Asian and emerging-market strategist, said in an interview in Singapore yesterday.
"We don't find it difficult to find large-cap Chinese stocks which are attractive and we are quite happy to recommend." China's low earnings volatility and "relatively contained" inflation make it more "attractive," Garner said. Oil driller Cnooc Ltd and coal producer China Shenhua Energy Co are on the brokerage's focus list of companies. In contrast, high earnings growth expectations are embedded in valuations for some Southeast Asian markets, leaving them "no margin of error" for unexpected interest rate increases, he said. The Shanghai Composite Index has climbed 33 per cent from its July 5 low as fund flows to emerging markets surged. Stocks in the gauge are valued at 17.7 times estimated earnings, less than half the multiple of 43 when the market peaked in 2007.
South Korea's Kospi Index has risen 16 per cent this year, adding to last year's 50 per cent jump. The gauge is at 11 times estimated earnings, the lowest in Asia after Pakistan and Vietnam. In Southeast Asia, benchmark indexes in Indonesia, the Philippines and Malaysia are among Asia's best performers this year. The rally drove the Jakarta Composite Index to 18.4 times earnings, the Philippine Stock Exchange Index to a multiple of 15 and the FTSE Bursa Malaysia KLCI Index to 16.3. Asean, North "We're not as enthusiastic about Asean and India as we are on North Asia," Garner said, referring to the Association of Southeast Asian Nations. Morgan Stanley predicted a "golden age" for Chinese consumption, citing rising incomes and declining savings rates, according to a November 1 report by economists Qing Wang and Steven Zhang.
The brokerage on October 25 increased China's allocation in its model portfolio, saying domestic growth is re-accelerating, and raised Asia to "overweight." A week earlier, it advised investors "gradually" to "scale back" holdings of emerging- market stocks after they had rallied more than 30 per cent since May 26, when Morgan Stanley last increased the overweight allocation for the shares in its model portfolio. The MSCI Emerging Markets Index has surged 16 per cent this year, more than twice the 7.4 per cent gain in the MSCI World Index of shares in developed markets. -- Bloomberg