AxJ Equities 1Q19: Policy and valuation support

Within ASEAN, we favour Singapore and Thailand
Chief Investment Office18 Jan 2019
Photo credit: AFP Photo

Asian governments have flexible policy options to cushion a slowdown. In the past, Asian economies have demonstrated resilience when facing external headwinds, such as trade wars. Given positive long-term fundamentals (such as strong FX reserves), Asian governments and central banks do have flexible policy options to cushion any slowdown from a potentially long-drawn trade war. Long-term economic plans are also in place to focus on stability and sustainability, including in China, Hong Kong, and Singapore. While some Asian economies are being challenged by the volatility of oil prices and fund outflows, we do not expect contagion, given the relative strength of their external balance sheets.

Valuation support for Asia equities. With the YTD underperformance of Asian equities, valuations have come down to 11.8x forward P/E – close to 1 SD below their 10-year historical average. This is also the level at which Asian equities used to bounce, as seen from previous market stress episodes – such as the eurozone crisis in 2011/2012, the taper tantrums in 2013/2014, and the Chinese yuan devaluation in 2015/2016. High cash levels among Asia ex-Japan funds suggest there is “dry powder” for markets to stage a rebound, once some of these uncertainties are gradually resolved. Furthermore, the Asian equity risk premium – the gap between earnings yield and the 10-year US government bond yield – suggests the region’s equities are inexpensive against current rate conditions.

Click here to read the full Asia ex-Japan Equities report.

Click here to watch our 1Q19 outlook video.

Click here for the latest CIO Insights publication.

Click here to see all our articles on CIO's 1Q19 outlook.


This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.  This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. 

This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you.  DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein.  In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.

If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.

This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Singapore: This publication is distributed by DBS Bank Ltd (Company Regn. No. 196800306E) ("DBS") which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the "MAS").