11 January 2024Deutsche BankResearch Asia Japan Strategy 2024 APAC Outlook Date Strategy Update Too bad, for too long, in too many placesWe see APAC equities benefitting from: 1) Liquidity trends moving in the region's, and in equities', favour, and 2) Falling inflation and interest rates providing a lift to earnings, while GDP growth rates remain steady. While the index P/E is above average, this reflects a fairly poor run of profitability. The MSCI AxJ has a Bloomberg consensus EPS lift of 7.5% anticipated, so our estimate of a 15% rise in the index requires minimal rerating. Equities, however, across most markets are one standard deviation low in most and 2 s.d. low in parts, so there's a path to multiple upside. We note inside how many markets have had as many or more down years than up in the last two decades, and HK has had four down years in a row, so is testing the bounds of market history across APAC. HK/CH and SE Asian markets, after a tough decade, appear to have a similar setup to the mid-2000s, and we expect them to rally around 20% each this year. We think it might be tougher going in IN and TW, which we expect to consolidate at these levels, while we expect JP and KR to advance 5%-10%.We believe the best way to position for this is to pivot away from leaders, towards laggard sectors and markets. We think the major risk for investors is growth not coming through as expected should the global economy slow. This is particularly risky for tech-related stocks in hot areas where capacity is being added rapidly and valuations are elevated.We see SE Asian markets and especially HK as the most promising, due to attractive valuation levels, oversold markets, and being well positioned in areas we are bullish about, such as commodities and tourism to destinations beyond the popular areas that people prioritized traveling to post-lockdowns. We are more cautious on manufactured goods, due to the ramp up in supply underway as supply chains get duplicated in home countries and as governments in China, the US and elsewhere provide support to businesses to fund green and advanced industries.Peter Milliken, CFAResearch Analyst+852-2203 6190Deutsche Bank AG/Hong KongIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. MCI (P) 041/10/2023.Distributed on: 10/01/2024 23:35:06 GMT7T2se3r0Ot6kwoPa11 January 20242024 APAC OutlookPage 2Deutsche Bank AG/Hong KongFigure 1: Discount to 20Y average of P/E1 and P/BSource : Deutsche Bank, Bloomberg Finance LP and its consensusFigure 2: Upsi...
