- Asia markets could have downside of about 16% if further tariffs are imposed
- Not time to bargain hunt yet until valuations are more palatable
- Correction should be shallower and over a shorter period than last year
- China/Hong Kong, Singapore, Indonesia and Philippines are our favoured markets
Asia markets are likely to face a volatile summer as the US-China trade dispute intensifies. The world awaits with for 17 June, when a decision will be made on the fate of USD300bn worth of Chinese exports. If these goods are hit with tariffs, there will be implications on global growth, cause an abrupt halt to the late cycle, and also exert downside pressure on the RMB and Asian currencies. We believe the correction in May is just the beginning of a risk-off move, and if further tariffs are imposed, further de-rating can be expected.
To recall, Asia markets were in a corrective mode for slightly more than six months during the trade war spats last year. Based on what happened in 2018 and valuations touching recent lows, Asia markets could have downside of about 16% from here.
Correction so far should be considered healthy
Asia ex-Japan PE valuations, at end-April, had returned to near +1SD above historical average compared to -1SD at the beginning of the year, leaving very little room for valuation re-rating. A correction, if any, should be considered healthy as it resets Asia markets to more attractive levels. Current valuations are still above average, and hence it is still not a good time to bargain hunt, in our view.
However, we think this time round, compared to last year, the correction should be shallower and over a shorter period than last year. Compared to last year when the Fed was hiking rates multiple times, expectations were high in terms of growth, and government policies were more of tightening rather than stimulating, especially in China. In contrast, the current environment is more supportive of growth.
To read the full report, click here to Download the PDF.
The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.
DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No. 09.03.1.64.96422.