'Correction' to kickstart rally in Asian bourses

08:50, January 29, 2010      

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Asia's stock market rally will resume after a "correction", offering investors opportunities to increase holdings, Goldman Sachs Group Inc and Credit Suisse Group AG said.

Goldman Sachs will start "extending a toe into markets" and Credit Suisse advised investors to start buying shares when the MSCI Asia - excluding the Japan Index - falls to about 420, or 7.2 percent below Wednesday's close, when the gauge ended 9.6 percent below the 18-month high on Jan 11.

"This is a healthy correction," said Nicholas Yeo, head of Hong Kong and mainland equities at Aberdeen Asset Management Plc, which oversees about $238 billion of assets globally. "This allows us to buy into some stocks that we've been eyeing but that have been too expensive."

Asian stocks outside Japan on Wednesday dropped for an eighth day, the longest losing streak since March 2004, after US President Barack Obama proposed measures to limit risk taking at banks and concern grew that China will tighten lending to rein in growth.

JPMorgan Chase & Co said on Jan 26 it's turning "less bullish" on emerging-market stocks in the first half of 2010, advising investors to consider put options, or bets that prices will fall.

"We view weakness in equity markets as a tactical correction, not the onset of a more significant fundamental downtrend," Goldman Sachs analysts led by Timothy Moe wrote in a report dated Wednesday.

The MSCI index climbed 1.9 percent to 460.96 as of 2:11 pm in Singapore.

Risk appetite

Investors with a longer-term horizon or higher risk appetites should "scale in" to markets, while others should wait before the MSCI Asian index finds "firmer valuation support" at a price multiple of 12 times companies' 2010 earnings, or a further 10 percent drop in prices, the Goldman Sachs analysts said. The gauge's current multiple of about 13.5 times is "attractive" given the growth outlook, they said.

Credit Suisse analysts Sakthi Siva and Kin Nang Chik also said that valuations for Chinese stocks traded in both Hong Kong and Shanghai are lower than the 2007 "bubble".

Investors should consider buying stocks when the MSCI Emerging Markets Index drops to 850, they said. The gauge on Wednesday closed 9.7 percent below its Jan 11 high, close to the 10 percent threshold that would mark a so-called correction. It rose 1.1 percent to 939.13 in recent trading.

Aberdeen may add shares including Chinese consumer companies after the slump in prices trimmed valuations, Yeo said, declining to name any companies. The available liquidity may mean that prices won't fall "too much", he said.

China's consumption

"China's consumption level is still low but that's the area with the greatest potential," Yeo said. He said on Jan 21 investors should seek out stocks in defensive industries or cash-rich companies as reduced stimulus and overcapacity prompt a correction in Asian equities.

Jardine Strategic Holdings Ltd, a company with interests in hotels, property and retailing, and China Mobile Ltd, the world's largest cell phone carrier, were the top holdings in Abderdeen's China Opportunity Fund as of Nov 30, according to data tracked by Bloomberg.

Share markets in Hong Kong and Shanghai led the drop in Asia this year amid growing concern that China will rein in credit to curb inflation. The People's Bank of China this month asked lenders to set aside more money as reserves following a record 9.59 trillion yuan of credit expansion last year.

China's surge in loan growth may increase the risk of non-performing loans for Chinese banks over the next two to three years, Aberdeen's Yeo said, adding that the investment company is continuing to avoid the largest Chinese lenders.

Source: China Daily
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