Asian Equities: Downward Trend Continues a.. Nov 20: Asia-Pacific stocks fell steeply, following Wall Street lower on further evidence of rapid earnings deterioration. FTSE Asia Pacific index dropped 5.1%, Nikkei 225 closed down 6.9% and the MSCI Asia Pacific Index fell 5.1% to 75.16 b.. MSCI performance YTD as of Nov 4: Asia Pacific:-54% | Korea: -54.2% | China: -57.1% | India: -62% | Hong Kong: -52.3% | Philippines: -50.6% | Thailand: -49.8% | Malaysia: -42.6% | Indonesia: -58.3% | Singapore: -47.7% | Taiwan: -43.7% c.. October: Asian stocks turned around to rally in last week of October, boosted by central banks opening up swap lines with the U.S. Federal Reserve. On Oct 30, Hang Seng Index ended 12.8% up, Nikkei rose 10% up. Kospi soared 12% and Singapore's Straits Times Index surged 7.8%. Nonetheless, performance as of end-October is still worse than the 60% fall in local currency terms during the 1998 Asian financial crisis (CS). Sustained outflows from offshore Asian funds have taken YTD total net redemptions to a record US$19.6bn, meaning all money taken in 2007 has gone (EPFR via Citi) d.. September: Asian stocks fell 17% in the biggest monthly decline since the financial crisis a decade ago. Asia hedge-fund closures jumped 19% this year. About 70 hedge funds in Asia have shut down between January to August e.. Valuation & Flow: Asian equities are the worst performing stocks globally. Asia ex. Japan's historical P/E has dropped to 6.9x - similar to the lows of 7.1x in 1974 and 7.4x in 1982 (CS). Markets are very oversold and redemptions are taking flows back to 2004 levels. In terms of redemptions, all inflows since late 2004 have left. The buy-in price for the 2004 inflows is 16% below current levels, inflows dated 2003 are 28% below now (Citi) f.. Earnings: 3Q08 earnings fell most in Taiwan (-55% y/y) and Malaysia (-48% y/y). Consensus expects 11% decline in EPS in 2008 and only 8% EPS growth in 2009 - which is still over-optimistic compared to HSBC forecast of -15% to -20% EPS growth in 2009 (HSBC) g.. Outlook: Countries that are most capable of responding to slowing may outperform as the pass-through of inflation to corporate profits is yet to have full effect. Others may be vulnerable to policy missteps, such as India, Malaysia (DBS) h.. Market drivers: FII outflows and exit by local investors alarmed at impact of global slowdown on Asia exports, high inflation, fiscal subsidies; impact of monetary tightening on consumer spending, investment, slowing global and regional growth, liquidity crunch may also impact company profits and capex plans i.. Government intervention: Several countries including Taiwan, Pakistan, Vietnam, Thailand intervened in the stock market by narrowing the trading band, introducing stabilization fund to contain volatility, banning short-selling, directing govt funds to buy shares j.. Upsides: AXJ region is now attractively valued, and buying into most of the region's equity markets seems a better bet than bonds; but Indian valuations still seem high (Fundsupermart). Valuations attractive in Taiwan, Thailand, Singapore, Pakistan, Vietnam k.. Downside: Valuation not enough to make stocks appealing in the face of global recession. Some earnings estimates have yet to capitulate to a weaker outlook
