By Chew Soon Gek, CFA
Neo Teng Hwee, CFA
Nigel Tan
Geographic focus: Asian equities
Client Profile: Male or female aged 18 to 60. Client has surplus cash and can take some impairment to capital.
Risk: Above average volatility
Time frame: At least 3 years
A new peak for Asian equities?
Asian equities still beckon. Asia today has a wider choice of quality companies with interesting growth prospects compared to the early 1990s. The markets are moving from a liquidity-driven phase to an earnings-led recovery. For 2004, we expect earnings growth of more than 20% on a forward multiple of 19x. Asia trades at a discount to the world markets on P/BV, but with similar ROE. There is plenty of liquidity in the banking system, with Asia's local investors sitting on US$2.1 trillion of bank deposits. This stands at 140% of GDP versus an average of 85% between 1991 and 1997. The Asian corporate balance sheet has been cleaned up, with net debt to equity at 38.5%, the lowest leverage rate over 20 years.
The long-term sustainable economic growth rate of Asia will be significantly above the developed world due to continuing labour supply growth and productivity improvements.