Credit Suisse - Asia Equity Strategy - Switch (further) from Taiwan to ASEAN

In our report, published earlier today, we suggest a further switch from Taiwan to ASEAN. We had already highlighted the attractiveness of ASEAN in our reports on 24 April (Is it time to look at the laggards?) and 6 May (Upgrading Singapore and Indonesia) and the high valuations in Taiwan in our report on 7 May (Taiwan – is the cross-straits hype in the price?).

We are moving to a 6% Underweight in Taiwan from 3% previously by dropping TSMC from our model portfolio. Taiwan trades at a 60% premium to the region, similar to the 65%
premium that H shares traded at during the peak in October 2007, when a similar “through-train” announcement occurred.

We are adding that 3% to ASEAN by upgrading Thailand and the Philippines (Thai banks, Philippine telecoms) and adding further to our Overweight in Indonesia. ASEAN is trading at a 142% discount to Taiwan on our P/B versus ROE valuation model. As
Figure 1 highlights, this is one of the biggest discounts in history. ASEAN’s 17% discount to the region is close to the biggest discount in history (see Figure 2). The three most undervalued markets on our P/B versus ROE valuation model are also from ASEAN (see Figure 3). Other factors that support this switch are the start of consensus EPS upgrades in ASEAN markets in May and the fact that markets like Thailand are very under-owned.