Asian Equities now back to the levels Pre the Collapse of Lehman
The most ferocious rally since late 1974 has allowed Asian equities to recapture all the losses they made after Lehman’s failure. This move has happened along with similar moves in corporate bond yields, and Asian CDS (see chart 1). Asian assets appear to be pricing-out the credit shock from last September/October.
China, Indonesia, Materials, Energy higher
China now 10% higher, Indonesia 12% higher than September, Korea,Singapore still more than 10% down. In Sectors, only Materials and Energy are above their September levels, though underlying commodity prices are still below those levels. Most defensive sectors still some way below their pre-Lehman levels.
Indiscriminate Liquidity Firing up Small Caps
Small Caps, 10% higher than pre-Lehman levels, look pumped up relative to larger cap stocks (just back to mid September levels) by indiscriminate liquidity. ETF’s have made up over half of Asian flows in recent months, helping to drive less liquid names higher. Expect that to be tempered as the dash to invest cash lessens.
Still Positive, but more willing buyers now of defensive laggards
We highlight five names that have lagged: DBS, HTC, Singapore Telecom, KT&G and Shinsegae (UBS Key Call) – are at least 10% below their pre-Lehman’s failure levels, have decent earnings momentum, liquidity and are at discounts (or modest premium in the case of DBS) to market valuations. We remain positive on medium term returns from Asian equities, but would increasingly look to laggard names with growth and reasonable valuations, regardless of their apparent defensiveness.
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