Post date: May 30, 2013 12:54:25 PM
HONG KONG, CHINA (May 29, 2013) (REUTERS) -
SUNIL GARG, HEAD OF EQUITY RESEARCH FOR ASIA PACIFIC, JP MORGAN
1. REPORTER :"2013 so far has turned out to be a very interesting year for Asian markets - it's been clear outperformance by Japan driven by Abenomics while the Chinese and Indian markets have barely chugged along. Will Asian EMs shine in the second half of the year?"
2. SUNIL GARG:
"See if you look at the Asian EMs, I think it's been a very mixed bag. I think some of the markets inSoutheast Asia - Thailand, Indonesia, Philippines - have actually done very well. It's really some of the larger EMs like China and India until more recently, and Korea and Taiwan that have struggled for performance. I think it's going to be a mixed bag here onwards as well. I do think that Korea and Taiwanwill struggle on an aggregate basis although there are bottom-up opportunities in both the markets. I think if you look at India despite all the headline macro negatives, we've seen a reasonably strong performance very recently in the market. We probably see a little bit of a pause for consolidation right now, although I think we could end up with the year finishing off quite strongly. I guess we can talk about that more. I think China's interesting. There's definitely lot of structural headwinds. But I also think there is a rotational bias in the markets at this stage, so trading bounces are likely in China. But I think if I were to take the next six, nine-month view, then clearly I think India amongst the Asian EMs looks much better placed as also some of the Southeast Asian countries."
3. REPORTE:
"Chinese equities, as you noted in your report are stuck in a trading range, lacking clear catalysts for one direction or the other. What catalysts will emerge to propel the market upwards or downwards?"
4. SUNIL GARG:
"Say look, if you're talking about a trading range then clearly there are two ends which are boxing the market in. I think the downside is protected by what looked like cheap headline valuations. And the cap on the upside is driven by the fact that you have a structural slowdown in this economy which then effectively implies a sustained earnings headwind. So you'd have to get out of one of these factors to essentially drive this market either higher or lower. I think if you look at what can drive a selloff, it's certainly going to be a liquidity squeeze that could be caused by either the central bank actions or specific sector restrictions like property. And that could certainly cause a selloff - in fact that would be required to cause a selloff. It's not something we're expecting in a major way. On the upside, do consider the fact that monetary policy's actually been reasonably relaxed since third quarter last year. Credit has grown very aggressively. So far that hasn't translated into an earnings momentum. Now, it could be perhaps that this monetary stimulus is taking longer to act - if that changes the view on earnings, forget the confidence in earnings, then I think this market can break out to the upside. Once again, that's not what we're expecting. We think there is a headwind on earnings. And to that extent, I think that's the reason why we think it's a trading range market."
5. REPORTER:
"How does Japan now stack up against JP Morgan's regional underweight positioning, with the Nikkei 225 Index's extreme volatility keeping Asian markets on edge?"
6. SUNIL GARG :
"See, our underweight is in China - so just to be clear here - and again I think there has been a rotational bias in markets. So if you get too oversold in a market like China, you bounce back. We could certainly be seeing that very short term. As far as Japan's concerned, yes there's been a rise in volatility. The market's given back a little bit of the gains. Put that in the context of a market that's gone literally vertical, nearly doubled since the lows middle of last year. And so is there a room for some pause, consolidation, some correction? Absolutely there is. I think this is much more of a bull market correction though. And I would use a pullback as a buying opportunity more than anything else."