>MULTI STRATEGY | ASIA (NOMURA)

Our view
Since mid-March, we have had a 50% solvency/50% reflation model portfolio. We stay focused on HK/China banks, property, plantations and coal for the summer. The summer sweet spot we believe lies in overlooked ‘Bad’ stocks – adequate solvency and inexpensive. We highlight our best ideas in this report.

Anchor themes
The default risk reduction rally (brought to you by governments) is over. A muted sequential recovery rally is now to come, in our view. Unlevered Asia will receive Western liquidity. Differentiation will be prominent.

We highlight leveraged plays which have run up – we would take profit. We think it is time to take profit in the ‘Ugly’ stocks as phase 1 of the rally is over (QE I). QE II is ahead. The only bear case is when CBs tighten. This is premature, in our view.

Good, Bad and Ugly
May 2009

■ Themes: Good, Bad and Ugly since 9 March
Asia ex-JP: Least expensive region globally; should it trade at a premium?
Australia: Run-up in expensive market. Now priciest market in Asia. SELL.
China: ‘Ugly’ has same value as ‘Bad’. So, SELL the ‘Ugly’. BUY the ‘Bad’.
Hong Kong: Least difference between the three groups: SELL the ‘Ugly’.
India: Poor value in ‘Good’ stocks. Good value in the ‘Bad’. BUY the ‘Bad’.
Indonesia: Tremendous run. Isolated pockets of value. TAKE PROFIT.
Korea: Little differentiation between ‘Ugly’ and ‘Bad’. BUY ‘Bad’. SELL ‘Ugly’.
Malaysia: Plantations are still inexpensive. Small caps are good value.
Singapore: Rational market. Difference smartly exploited. Resources inexpensive.
Taiwan: Only market with no difference between Bad & Ugly. BUY ‘Bad’.
Thailand: Great run. Market still inexpensive. BUY the oils.

■ Also inside
Doing a sector-wise analysis of the ‘Good, Bad and Ugly’, we find value by searching out the most attractive sectors throughout Asia. We see Telecoms as the most interesting sector in Asia for value (page 5).

We compile a list of ‘Ugly’ stocks that have run the fastest and are now expensive. These would be our candidates for taking profit (page 5).

■ Global signals for equities: Bullish, Neutral or Bearish?


To see full report: MULTI STRATEGY