Citigroup Asia ex Strategy Market to Houston: Headwinds Too Strong

 A strong US$, declining EPS revisions, and contracting liquidity proved too much
— US$ strength has once again proven to be a blow to Asian markets aspirations.
The first round impact is on liquidity, the second on earnings. Earnings revisions
have weakened, with more to come. Excess liquidity once so ample is now
contracting on a YoY basis. These headwinds are too strong near-term for markets
to ignore.

 Valuations are getting more attractive and expectations more realistic — P/BV has
gone from a peak of almost 2.2x down to 1.9x. This is close to the historic mean
and close to the same point in time of prior cycles. Excessive expectations have
been rung out of markets, which set us up for the next recovery. It will require
patience but it will come. Sentiment remains above average and market internals
don’t suggest we are oversold as yet.

 The key for markets remains earnings and delivery — We see no reason to pay up
at this stage or own over-crowded areas. We remain underweight China, materials,
real estate, other financials and consumer defensive. Our longs are Hong Kong,
Korea and Taiwan, along with telecoms, banks, tech and energy. We highlight the
most oversold/overbought, cheap and expensive stocks.