Yuanta Regional Monthly Strategy — July 2019

Yuanta_Regional_Monthly_-_July 23 Yuanta_IN190626

Macro: US demand momentum has dipped slightly, while demand in the eurozone and China has shown no improvement. The Fed is adjusting policy direction, and US private consumption is increasing, while corporate confidence and capex are hampered by external risks. Meanwhile, the ECB implies further loosening of monetary policy, due to stagnant economic growth and weaker than expected inflation in the eurozone. For Taiwan, the TAIEX will likely stabilize from previous corrections and see range-bound consolidation at a high level, given a halt in foreign fund outflow following the easing of trade war risks.

Taiwan: Currently, the TAIEX remains firmly above the MA60 and is performing relatively strongly among Asian stock markets. Amid the rising influence of global central banks’ loosening monetary policy YTD, the amount of gov’t bonds with negative yields in the eurozone and Japan has risen to a new high, while the average dividend yield of current listed TW companies is as high as 4.4%. We believe high dividend yields and a stable F/X trend for the TAIEX should re-attract foreign investors. Going into 3Q19F, major TAIEX-listed companies will hold analyst meetings as well as release semi-annual results. We expect the market to focus on stocks that 1) are immune from the trade war impact; 2) are posting strong 2Q19 sales despite weak seasonality; 3) have positive outlooks for 2H19; 4) are maintaining a stable dividend yield; and 5) are likely to see share prices return to the pre-ex-div level.

Hong Kong: HK benchmark Hang Seng Index has seen relatively flat movement MTD after a 6% MoM gain in June. The lack of direction was caused by 1) a lack of concrete progress on the US-China trade talks; and 2) uncertainty regarding the US interest rate direction. We believe the share prices of HK retail-centric stocks such as Sa Sa, Bonjour and Chow Sang Sang will continue to be adversely impacted by the recent political events in the city. In the meantime, defensive names in the food & beverage, sportswear and export sectors are our preferred choices. Our 12-month HSI range forecast is maintained at 26,000-30,000.

Shanghai: The A-share markets have seen fluctuations recently. Official domestic 1H19 economic figures indicated a stably growing economy and relatively strong economic resilience, which may suggest future monetary policy might not favor easing as much as the Street expects.

Korea: Although the Korea-Japan trade dispute is weighing on the economy, it is unlikely to intensify in the near-term given its possible impact on the global economy. We do not expect 2Q19 earnings announcements to be positive for the market, but given that profit indicators are slowly recovering, they may create expectations that earnings are bottoming-out. Moreover, if the Fed announces a market-friendly monetary policy that meets expectations, the KOSPI may rise.

Indonesia: Bank Indonesia (BI) lowered its benchmark rate to 5.75% (down by 25 bps) as global central banks including the Fed indicated dovish monetary policy. BI’s move was positively received by the market, as the JCI increased by 3.2% MoM and the Rupiah strengthened by 2.7% MoM, while the bond yield dropped 58 bps MoM to 7.1%. Despite the positive response from the market, BI’s meeting notes disclosed that 2Q19 GDP could be on the lower side at 5.1%, similar to last quarter.

Thailand: The SET Index rose 2.37% from June 19 to July 18 due to strong funds flow into emerging markets (EM) given a possible reduction in the US interest rate, formation of the new Thai gov’t and FITCH upgrading Thailand’s outlook from stable to positive. Since MSCI rebalancing, foreign investors have net bought Thai shares YTD to the tune of THB58.3 bn vs a net sell of THB287.5 bn in 2018. Next month, the market will likely move on the back of 2Q19 results, which kicked off with the banking sector last week.

Vietnam: The VNIndex rose 1.9% MoM to close at 982 on July 22, back to the levels of mid-May though still 3% below the 2019 peak of 1012 reached in March. We continue to believe external monetary conditions are key for Vietnam equities market liquidity, and with the US Fed set to cut rates on July 31 (by 25bps, we reckon, but could be more), we believe the worst should be behind us.