Positive core equity stance for 2013
The watchwords for 2013 are ‘growth recovery’. Asian regional economic
growth should improve to 6.9% from 6.2%, and corporate earnings growth
should accelerate to 13% and 14% in 2013/14 after two years of stagnation.
This is a favorable backdrop for equities, particularly given inexpensive
valuations and conservative investor positioning. We are overweight
China, India, Korea and Singapore, and tilted towards cyclicals.
What's changed? US fiscal, China growth, positioning insights
In the five weeks since we published our 2013 views, the US has reached a
fiscal compromise, China’s growth and policy outlook has firmed, and our
marketing feedback shows investors to be under-risked relative to their
views. Regional markets have risen 6%; although somewhat stretched
short-term, they have not fully discounted the fundamental outlook.
Higher target, swifter path, more cyclical tilt
We raise our MXAPJ 12m target 4% to 540, implying a 13% price return
and 16% total return including dividends. The driver is a higher P/E target
of 12.3x (previously 11.8x), which is in line with our top-down valuation
models and 0.5 SDs below historical mean. Our refreshed 500 and 510 3m
and 6m targets show a more front-loaded path. We increase our sectoral
growth tilt by raising autos and capital goods, and reducing telecoms.
Ways to play improving growth
Our implementation ideas key off the growth recovery theme. 1. Global
Cyclicals vs Defensives (GSSZMSGC vs. GSSZMSDF). 2. Growth recovery
basket (GSSZGWRE). 3. Large-cap GARP laggards. 4. Top-down stock picks
(GSSZTDSP). 5. HSCEI call-spreads.