Friday, November 13, 2009

>Technical analysis for Asian benchmark investors

Asia versus World: At the breakout level
Asia versus EMF: New sell signal
Asia versus EEMA: Rolling over
Australia versus MSCI Asia Pac: Aussies doing too well
Strength Ratings - Country
Thailand versus Asia: Rangebound
Taiwan versus Asia: Basing
India versus Asia: Overweight
Indonesia versus Asia: A new 12-year high
Strength Ratings - Sector
Financials: Upgraded to Overweight
Consumer staples: Upgraded to Overweight 14
Industrials: Underweight
Materials: Neutral
Asian stocks Strength Ratings: First quintile
Asian stocks Strength Ratings: Fifth quintile
Asia: Top-30 model portfolio (100% invested)
Asia: One-month reversion/14D RSI combo - Profit taking
Asia: Stocks to sell or buy using price reversion
SELL: Singapore Exchange - Rolling over
SELL: Angang Steel - Relative weakness
BUY: Foxconn International - Breakout
BUY: China Merchants Bank - Trading-range breakout
Quintile performance of MSCI Asia ex-Japan
Top-30 portfolio performance and turnover
Japan: Top-20 Strength Ratings
Japan: Top-20 model portfolio - Hypothetical track record
Japan: Sector Rankings
Australia: Top-20 Strength Ratings
Australia: Top-20 model portfolio - Hypothetical track record
Australia: Sector Rankings
Australia relative sector focus: Energy reduce to Neutral
Relative strength and portfolio notes
Asian stocks Strength Ratings: Second quintile
Asian stocks Strength Ratings: Third quintile
Asian stocks Strength Ratings: Fourth quintile

To read the full report: ASIA FINANCIALS

>BANKS: Light at the end of the tunnel

FY10F: margins under pressure, equity capital raising partly lowers risk of NPLs After muted loan growth in 1HFY10, we expect loan growth to pick up in 2HFY10 and maintain our 16% yoy growth estimate. Further, we expect NIMs to be higher in 2HFY10 vs 1HFY10, as 18% of deposits are to come up for repricing in 2H. For FY10, on balance we expect NIMs to fall 20-30bp yoy. Our concerns about asset quality have receded partly due to equity raising by companies. In our 24 June 2009 note (At the crossroads), our estimate was that gross NPLs would rise by Rs857bn up to March 2011, implying a 3.6% GNPL ratio (2.4% as of March 2009) and, accordingly, we had factored in higher NPL provision for banks in general. However, the improving macroeconomic environment and the equity capital raising of about Rs410bn ytd and about Rs695bn in the pipeline have reduced our concerns on asset quality. In short, core earnings will likely remain under pressure in FY10, but lower NPL provision will likely ease some of the pressure on RoAs.

FY11-12F: improvement in core earnings, led by margin expansion and fees A long-term analysis of SBI’s margins suggests that NIMs come under pressure when interest costs rise, implying that the ability to pass on the total increase in cost of funds for banks in general is limited. However, as liabilities get repriced lower over the maturity cycle in FY10 (overall cost of liabilities is down 200-300bp yoy), NIMs will likely expand in FY11- 12. Also, healthy growth in core fee income (1HFY10) despite the muted loan growth has been a pleasant surprise. We expect a combination of these factors to drive improvement in core earnings in FY11-12F.

RBI's 70% coverage norm is a mere book entry; upgrade PSBs to Buy Fears of withdrawal of the accommodative monetary stance by RBI and the advice to maintain a 70% provision coverage ratio for NPLs have led to some correction in bank stocks. We believe this is a counter-cyclical measure and is structurally positive for the system in the long term. In our view, the higher provisioning may impact reported net profit, but will help strengthen the balance sheet over the medium to long term. Note an increase in coverage ratio is a mere book entry and is different from an actual loan loss charge. We thereby consider this an opportune time to Buy. In general, we raise our FY10-12 net profit estimates, driven largely by the rolling back of NPL charges. We roll forward our valuation to FY11F and upgrade public sector banks (PSBs) to Buy. On a relative basis, we now prefer PSBs over private banks. Top picks: SBI, PNB and BOB. IDBI Bank remains a contrarian Buy.

Loan growth set to accelerate After muted loan growth in 1HFY10, we expect loan growth to pick up in 2HFY10 and maintain our 16% yoy growth estimate. Most bank managements have been guiding for 18-20% yoy loan growth in FY10, on the back of a robust sanctions pipeline. We believe infrastructure loans, higher demand for working capital and retail loans will be the key drivers of loan growth. Further, the government’s borrowing programme for FY10 is 70% completed and, therefore, we believe the incremental loan-deposit ratio in 2HFY10 will be better than in 1HFY10.

To read the full report: BANKS


Bet on city-centric focused plays: The ongoing recovery in the real estate sector has been faster than expected. While the residential vertical is in a strong growth phase, we expect other verticals such as the retail and commercial sectors to recover faster than expected. We believe, at this stage of the real estate cycle, well managed mid-cap companies with a city-centric focus provide good investment bets. The ongoing recovery in the real estate vertical has been primarily strong in tier-1 cities, such as Mumbai, Delhi and Banglore, while recovery is still to gain momentum in tier-2 and tier-3 cities. We expect tier-1 city-centric players to outperform those with high concentration in tier-2 and tier-3 cities.


Key RE companies have strong monetization visibility: Key mid-cap RE companies have strong monetization visibility over the next three to four years, with top three or four key projects accounting for most of their NAV. The acceleration in the RE recovery will allow these RE companies to accelerate their monetization process and pursue NAV enhancement strategies.

RE sector to enjoy increased access to institutional funding: Worldwide the maturity of the real estate sector is gauged by the availability and access to institutional funding. While the access to institutional funding for domestic real estate companies increased significantly since FY06, the domestic real estate industry continues to be at a nascent growth stage. We expect increased access to institutional funding such as REITs and REMFs to drive growth in the domestic sector over the next few years.

Top picks: The RE sector seems firmly set for recovery, following the successful balance sheet recapitalization by key RE companies and the pick-up in RE activity. We believe key mid cap real estate companies, with a city-centric focus, robust financials and strong near-term monetization visibility, are well placed to capitalize on the growth phase ahead, as they can shift focus to project monetization and pursue NAV enhancement strategies. Again many of the key mid-cap real estate stocks are trading at discounts to their NAV and provide good investment opportunities. Our top picks in the mid-cap real estate segment are Anant Raj, Mahindra Lifespaces and Phoenix Mills.

To read the full report: REAL ESTATE

>2010 GEMs Outlook: Headwinds Building But Further Upside Likely

We expect a more micro market in 2010. After two years where macro themes drove emerging equity markets, we expect a shift to a more micro market.

Earnings and Valuations. Economies and earnings are recovering and it is likely too soon in the cycle for a major peak in EM equities. However, we do face the headwinds of a) monetary policy tightening (first in Asia and then the US) and b) a higher oil price. Valuations are neither expensive (24 months ago) nor cheap (12 months ago) in our view. On our base case of 40% US$ EPS growth, MSCI EM is trading on 13.4x 2010e PER. Our scenario-weighted year-end 2010 price target for MSCI EM is 1200, representing 28% upside from current levels and 22% above our previous target price.

Country and Sector preferences. China is our biggest country OW and South Africa our biggest UW, though in general we see few mispricings to exploit at the country level. However, we believe investors can profitably take risk at the sector level. Our preferred sectors are Energy in general and Financials / Consumer Discretionary in the under-levered, faster-growing economies in Asia/EM (China, India, Brazil and Indonesia). Least favoured are Telecoms and Utilities. We are also downgrading IT to equal-weight on both valuations and its historical
sensitivity to a global rate hike cycle.

Best Business Models. We recently concluded our two-part series on Sources of Competitive Advantages in EM by naming the Best Business Models in each of 26 different industry groups. Large-cap names which make the list include: CNOOC, ENRC, Mediatek, Reliance Industries, Tencent Holdings and Walmart de Mexico.

To read the full report: GLOBAL STRATEGY


Flow versus flow: We analyze demand for and supply of Indian paper, both private and public, over the next few months to understand the implications for the Indian market. The market appears fully valued and lacks catalysts, which makes the amount of paper supply and demand for the same important in determining its future course. We concede that this may be an academic exercise and things seldom work to form given the myriad associate complexities.

Inflows: Depends on several variables
Outflows: Large amount of fund raising planned

Market shows a strong correlation with net secondary market flows; no surprises there.
Future institutional inflows or demand for paper very hard to judge
Supply of paper, private and public, very large on paper
Market is fairly valued in the absence of triggers in either direction

To read the full report: INDIA STRATEGY