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UBS WM’s Apac equity picks for 2018

UBS WM’s Apac equity picks for 2018

This year UBS Wealth Management is risk-on trades in Asian equities, and is betting on economic growth in the region, driven by China’s Belt and Road initiative and strong earnings expectations as businesses benefit from reviving exports.

Speaking at the company’s Insights 2018 client conference in Singapore, Tan Min Lan, head of chief investment office Apac said: ‘We remain positive on Asian equities. Asian equities rose 40% last year. This year, maybe we'll get 12-15%.

‘But Asian investors will probably buy bonds rather than equities, which has been happening for the last two years.’

The Swiss private bank expects earnings in the region to grow around 11%, lower than last year’s 19%. The bank entered 2017 with an overweight in Asia ex-Japan equities, but took profits during the year.

It is moving back to a tactical overweight by reducing allocation to US investment grade bonds as it expects resilience in the equity rally.

In its three to six months view, UBS is overweight offshore Chinese equities because of China’s deft management of economic growth and deleveraging of the shadow banking system.

It is also overweight Thailand and Indonesia, with both markets expected to benefit from the commodity recovery, which in turn will likely boost company earnings.

While the bank is backing internet stocks, unlike some other market participants, it believes that certain tech hardware stocks are enjoying their last few days in the sun.

‘We are underweight Taiwan as we believe the earnings forecasts for Taiwanese companies are too optimistic and could lead to relative underperformance,’ it noted in its 2018 house view report.

The bank is also underweight Malaysia and the Philippines for it believes market expectations don’t reflect the gravity of domestic issues.

In its sectoral view, aside from internet stocks, UBS likes financials, including insurers and banks, Tan said, because the sector will benefit from improving asset quality, rising rates – averaging an increase of 25 to 50 basis points across Asia, and a reviving credit cycle.

‘In terms of 2017 laggards, consumer stocks and infrastructure stocks in countries in Asean and India present interesting opportunities partly because some of these countries will hold general elections in the next 18 months and they will be beneficiaries of China's Belt and Road initiative,’ she added.

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