CLIVE MCDONNELL TACTICAL THURSDAY 13 MAY 2010
3 BNP PARIBAS
Summary of our views
Exhibit 3: BNPP Asset Allocation Recommandations Exhibit 4: Asia ex JP Country Over/Under Weights
107777--(5)(15)(10)(5)051015India (OW)Taiwan (OW)Singapore (OW)Malaysia (OW)Indonesia (OW)Korea (N)China (N)Hong Kong (UW)Thailand (UW)Philippines (UW)(%)
Recommended weights relative to benchmarks
A u s t r a l i a H K C a s h T h a i l a n d I n d o n e s i a S i n g a p o r e C h i n a + H K M a l a y s i a I n d i a K o r e a T a i w a n C h i n a
AXJ Mutual Funds Country over/underweights
Note: OW=Overweight; N=Neutral; UW= Underweight.Source: BNP Paribas Sources: EPFR; FactSet; MSCI; BNP Paribas
Exhibit 5: BNPP Recent Asian Equity Strategy Themes
Tactical Themes Investment Thesis & Ideas Market Sentiment on the Theme
Policy Easing in China China’s yield curve has collapsed (-22 bps) in the past 10days, pointing to the possibility of an easing of policy by thePBOC as the next move. We believe this will be the trigger tore-rate the China market.
Euro contagion reaches Asia We believe the key short-term effect of the Greek fiscal crisison Asia centres on the risk of portfolio fund outflows. Ourmodel signals the MSCI AXJ index could drop by 17% from 30April levels.
Catalysts for Banks We expect banks in the region to outperform under the currentmacro environment, and recommend a switch from India banksto Chinese and Korean banks.
Implications of a stronger RMB We believe the RMB will resume its appreciating against theUSD in 2010. Potential beneficiaries are China’s A-shares,materials and consumer discretionary sectors. MSCI HongKong will likely underperform.
Go large We expect large-cap stocks to start outperforming mid/smallcaps, due to a reverse in risk appetite, slowing fund inflows,and as valuations look attractive. We prefer large caps inChina, Hong Kong, Taiwan and Korea.
Five structural themes 1) Alternative Energy: We analyse the drivers of environmentalchange, government support and demand.2) Rural Asia: We analyse the spending power in rural Chinaand India, driven by supportive policies and rising income.3) Aging Challenges: Asia’s fast growing elderly population hasincreasingly become a pressing issue.4) Economic Rebalancing: China’s manufacturers need tomove up the value chain as the economy rebalances.5) New EM: Korea will likely graduate from MSCI EM to DM.UAE and Qatar are most likely to achieve EM status in 2010.
Source: BNP Paribas