Stable earnings growth, cheap valuations and market sentiments could provide a relief rally in Asian equities, according to Michiel van Voorst, chief investment officer for Asian equities at UBP Asset Management.
‘The combination of, if you believe like I do, that the earnings outlook isn’t half as bad as people are fearing, and given where valuations are, and where sentiment is, you have three powerful building blocks in my view for at least a relief rally,’ he told Citywire Asia.
Although earnings outlook is less bullish than at the start of the year, it’s not falling off the cliff, he said, adding that listed equities are still producing pretty decent earnings.
At the start of the year, investors could expect between 16% and 17% earnings growth for Asia as a whole.
‘Today, I would argue that [earnings growth for Asian equities] looks more like 12%,’ van Voorst said.
What’s more, forward-looking earnings indicator has also suggested that earnings outlook for October could be on par with September earnings, van Voorst added.
More importantly, it seems that earnings growth for Asian equities is not deteriorating further.
van Voorst said: ‘We have to see that materialises but that’s how it looks like.’
Meanwhile, the price-earnings ratio for Asian equities has also dropped following a sharp stock market correction.
Investors are sitting right at the level where in the past markets were buying rather than sell, van Voorst said. This is barring a global financial crisis or debt crisis, however.
‘If the earnings are pretty stable, and the valuations are where they are, I would argue there are two building blocks to become constructive on our markets,’ he said.
Lastly, market sentiments, which could change quickly, might also be a building block for a relieve rally.
‘It strikes me so often that if consensus is convinced about a certain outcome, and you fast forward six months later, the opposite has happened. It happens all the time,’ he said.
Citing examples, van Voorst said everyone is bullish about EMs, cautious about US, bearish US dollars at the start of this year. However, only in short even eight months later, sentiments have completely shift the other way round.