Asianmarketsretreat–Ourview
Asianmarketsretreat–GuinnessAtkinsonview
ByEdmundHarriss,
InvestmentDirectorandPortfolioManager,GuinnessAtkinsonAssetManagement
Aftersuchastrongrunthisyearinstockmarketsaroundtheworld,investorsareconcernedthatsomethingnastyisabouttohappen.Unlessthereisastrongviewaboutthedollar,interestrates,oraglobalpriceshockthenthequestioncomesdowntovaluation.Havemarketsbecometooexpensiveandthereforeshouldweretreatalittlebeforeyearend?
Tome,thislookslikeabroadermoveinsentimenttocutbackonpositionsthathavedonewell,i.e.aquestionofvaluationandprofit-taking.Thisdoesnotappeartobebecauseofanyfundamentalchangetomarketearningsoreconomicconditions.
WethinkthatAsianmarketsnevergotexpensive.Valuationshavecomeupfrommulti-yearlows(whichalsodepressesthe10-yearaverage,makingthatcomparisonlowerthanitmightotherwisebe)andaresupportedbystrongearningsgrowthforecastswhichinturnaresupportedbystrongprofitgrowthalreadyreported.
WhatfollowsisaquickreviewofwhatIthinkisrelevant:
Markets:
1. Thestockssellingofftoday4%ormoreinourportfoliosincludeCatcher,Largan,AACTec(smartphones),PingAn(Chineseinsurance),GeelyAuto(Chinesecarmaker),StShineOptical(TaiwanHealthcare),Haitian(Chinesemachinerymaker),AnhuiConchCement(Chinesecementmaker).Thosesellingdown2%-3%:HanonSystems(KoreaAutoparts),Chinesebanks,DeltaElectronicsThailand(powersystemsforTechhardware).Thisisabroadrangeofsectorswithnocommonthemerunningthroughotherthantheyareinmarkets(China)orsectors(Technology)orarestockspecificwhichhavealldonewellthisyear-up50%ormore.
Asianmarketsretreat–Ourview
2. ReportedearningsgrowthinAsiaisstillaccelerating
Source:Bloombergdata,GuinnessAtkinsoncalculations.DatathroughtoNovember30,2017.
3. ForecastearningsgrowthinAsiaisalsorisingstrongly–thedipintheredlineisadatadistortioninSept/Oct,correctedinNovember,relatingtoSamsungElectronics.Takeoutthat2-monthdataerrorandrevisionsforboththisyearandnextarestillaccelerating.
Source:Bloombergdata,GuinnessAtkinsoncalculation.DatathroughtoNovember30,2017
Asianmarketsretreat–Ourview
4. ThemarketPEvaluationhasbeenrisingsincethelatterpartof2016.Itnevergotexpensivecomparedtoits10-yearaverageandrecentweaknessispullingitbacktowardaverage.
Source:Bloombergdata,GuinnessAtkinsoncalculations
Macroview:
1. Atthehighlevel,therearenoconcernsbeingexpressedaboutGDPgrowth.Chinaisexpectedtoslowdownfrom6.8%toward6.5%asfinancialsectorreformscontinueanddeleveragingprogresses.Themarketsappearcomfortablewiththisandwehaveseennosurprisesinretail,industrialoutput,investmentorinflationdata.
2. Atasectorlevel,theconcernhasbeenraisedthatthecyclehaspeakedandthathighercomponentpricesmeanthateitherdemandwillreduceorthatpricesmustfall.SomeanalystsareforecastingthatQ12018willseethepeakiniPhonesalesgrowthalthoughthevolumesarestilllikelytoremainhigh.
3. SomeanalystshavealsowarnedthatcarsalesgrowthinChinawilllosemomentuminthecomingmonths.GuangzhouAuto(notheld)reportedweakersalestodayandsomeinvestorsarereadingacross.ButthiscompanyproducesandsellsHondacarsandunlessinvestorswerealreadynervous,theimpactofthisnewswouldnormallybeslight.
4. LookingacrosstheeconomiesofKorea,Taiwan,Singapore,Thailand,andAustraliaweseenochangestoconditionsfrom6monthsago.TheoutlookforUSinterestrateshasnotchangedandneitherhastheoutlookforthedollarvsregionalcurrencies.
Ourviewinsum:
Aftersuchastrongrunthisyearinstockmarketsaroundtheworld,investorsareconcernedthatsomethingnastyisabouttohappen.Unlessthereisastrongviewaboutthedollar,interestratesoraglobalpriceshockthenthequestioncomesdowntovaluation.Havemarketsbecometooexpensiveandthereforeshouldweretreatalittlebeforeyearend?
Asianmarketsretreat–Ourview
WethinkthatAsianmarketsnevergotexpensive.Valuationshavecomeupfrommulti-yearlows(whichalsodepressesthe10-yearaverage,makingthatcomparisonlowerthanitmightotherwisebe)andaresupportedbystrongearningsgrowthforecastswhichinturnaresupportedbystrongprofitgrowthalreadyreported.
Onthatbasis,marketweaknesslookslikeabuyingopportunityandinthefaceofweaksentimentweshallberebalancingourstockpositionsintothatweakness.
December6,2017
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MSCIACPacificEx-JapanIndexisamarketcapitalizationweightedindexthatmonitorstheperformanceofstocksfromthePacificregion,excludingJapanconsistingofAustralia,China,HongKong,Indonesia,Korea,Malaysia,NewZealand,Philippines,Singapore,Taiwan,andThailand.
OnecannotinvestdirectlyinanIndex.
Price/EarningsRatio(P/E)isanequityvaluationmultiple.Itisdefinedasmarketpricepersharedividedbyannualearningspershare.
1SDmeans1StandardDeviationwhichisameasure expressingthedegreeofvariationaroundthemean(i.e.byhowspreadoutthenumbersinagrouparefromtheaverage).
Asianmarketsretreat–Ourview
ASIA PACIFIC DIVIDEND BUILDER FUND Top 10 HOLDINGS (as of 10/31/2017)
1. Li & Fung Ltd 3.25%
2. Luk Fook Holdings International Ltd 3.10%
3. Relo Holdings Inc 3.09%
4. LPN Development PCL /Foreign - NVDR 3.06%
5. Hanon Systems 3.02%
6. Largan Precision Co Ltd 3.00%
7. Yangzijiang Shipbuilding Holdings Ltd 2.93%
8. Catcher Technology Co Ltd 2.90%
9. DBS Group Holdings 2.83%
10. St Shine Optical Co Ltd 2.81%
ASIA FOCUS FUND Top 10 HOLDINGS (as of 10/31/2017)
1. Sino Biopharmaceutical Ltd 3.64%
2. Geely Automobile Holdings Ltd 3.56%
3. Tencent Holdings Ltd 3.50%
4. Samsung Electronics Co Ltd 3.49%
5. Largan Precision Co Ltd 3.47%
6. Hanon Systems 3.41%
7. Relo Holdings Inc 3.40%
8. Anhui Conch Cement Co Ltd - H Shares 3.23%
9. St Shine Optical Co Ltd 3.20%
10. DBS Group Holdings 3.18%
Fundholdingsandsectorallocationsaresubjecttochangeandarenotrecommendationstobuyorsellanysecurity.
DistributedbyForesideFundServices,LLC
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