Investors Will Shift To Asian Stks;Should Target Tech
Investors Will Shift To Asian Stks;Should Target Tech
Dow Jones Hong Kong
A U.S.-led global recovery will prompt investors to return to Asian equities this year and as they do, they should look at growth and cyclical stocks, especially in the technology sector, ING Barings said in its outlook for 2002.
The investment bank is projecting that the "worst is now over" for Asian equity markets and believes that investors will see positive returns on their investments this year.
According to Markus Roesgen, Asian strategist with ING Barings, there is plenty of liquidity around to support a return to the stock markets and low interest rates will serve as an incentive for retail investors to do that.
In Hong Kong, Singapore and Thailand, more that 70 percent of the companies covered by ING Barings pay a higher dividend yield than the local savings rates, Roesgen noted. In South Korea and Taiwan the rate is close to 40 percent.
In many cases "you are better off buying the bank than saving with the bank," he said.
Valuations in Asia are also cheaper now than they have been in 23 out of the past 26 years and lower than anywhere else in the world except Japan.
Meanwhile, the recovery in global stock markets in the fourth quarter will contribute to a renewed interest in stocks, Roesgen said, noting "greed" as one driver of investment decisions.
"Clearly you don't want to see your next-door neighbor become a millionaire when you still have your money in the bank (with very low interest)," he said.
And while unemployment rates may still be trending towards their peak in some Asian countries, the rate of the increase will be slowing down.
This will affect consumers' interpretation of the situation as the probability of them becoming unemployed declines, Roesgen said.
According to ING Barings, technology offers the highest growth potential.
Even if the sector only returns to its 10-year average rate of return on equity, the upside is 145 percent from current levels, he said, adding that most sectors are expected to return to their 10-year average as the global economy recovers.
This would also leave 52 percent growth potential for conglomerates and 42 percent for consumer cyclicals.
One sector, which looks good from this perspective, but isn't according to Roesgen, is telecoms.
The 10-year average is high for this sector due to very high returns on equity in the early 1990s when it was a regulated market, he explained.
In fact, the telecom sector is ING Barings' biggest underweight sector for 2002 due to expectations of share price volatility, continued weak global sentiment for the sector and uncertainty about key regulator decisions in Asia.