· Andrew Garthwaite (Daily attached): The real risk to the economic recovery is that regulators over-regulate. Admittedly, trying to gauge the possible financial impact is guesswork – yet if we assume the cost of civil settlements and regulatory fines are twice as bad as those that followed the dot.com bust, then the cost to investment banks would equate to about 5% of their equity and third of their 2010 estimated net income. We note that the P/E relative of investment banks is close to its long-run average (a 33% discount to the market compared to a long-run average discount of 28%).
· Prashant Gokhale (Daily Attached): So far we have been beating the drum about spare capacity in oil markets. What supports oil prices is a US demand recovery, which depends on consumer, and which is showing signs of picking up. What caps upside is pretty much everything else – slowing China momentum, peaking global IP growth, slack refining, spare capacity and beyond a point of affordability. We think oil will be range bound – US$70-90/bbl. Once US demand recovery is priced in, oil should trade at the lower end of the range, as spare capacity gets absorbed. We expect this until the demand needle moves either way – upside surprise or greater evidence of gas substitution in emerging markets and/or greater evidence of supply growth.
· Sakthi Siva (Daily Attached): As of 16 April, net foreign buying in Emerging Asia (excluding China and Malaysia, for which we have no data) has reached US$7.6 bn (right most column in Figure 1). While the USD amount was a record high in March, with net foreign buying of US$14.6 bn, we note that as a percentage of market capitalisation, it was 0.4% while the previous high was 0.7% in late 2003. On a rolling 12-month basis, cumulative net foreign buying in Emerging Asia is now 2.2% of market capitalisation versus a high of 4% in 2004. On a cumulative rolling 12-month basis, the Philippines and Indonesia look the least “crowded” at 0.5% and 0.6% of market cap, respectively.
Financial intermediation remains key to support global economic recovery, albeit I personally think Consumers in US/UK/Japan remain highly leveraged. Our mid-term Oil range forecast of US$70-90/bbl is in line with CS forecast of $83/bbl for 2010F and $80/bbl 2011F onwards. Despite strong Net Foreign inflow in Asia, Indonesia remains the least “crowded” and we continue to recommend Overweight Indonesia with JCI Target 3,300pts end-2010F (implying 17.5x 2010F PER) and Top-5 stock picks (INDF, UNTR, SMGR, BMRI, BBRI)!
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