Yuanta Regional Strategy Monthly — August 2019

Yuanta_Regional_Monthly_-_August 22

Macro: The US economy has been relatively stable, and US private consumption has turned stronger. However, with external risks weighing on corporate confidence and capital expenses, the Fed may continue to cut rates as a precaution. For the eurozone, demand has remained weak. The ECB has followed the Fed and opted for easing policies. Coupled with continued political conflicts, the euro will likely remain weak. For Taiwan, the TAIEX has continued to consolidate at a high level, supported by positive news and government encouragement of capital flow-back. Meanwhile for China, growth has stopped decelerating for now.

Vietnam: VNIndex rose 1.3% MoM to close at 994 on Aug 21 after a month of rangebound (965-998) trading. We still believe the balance of risk is to the downside in the S-T due to global macro/political risks that we believe are driving foreign selling in August. However, we have a more optimistic take on 4Q19, based on our view that global policymakers are likely to muddle through the various issues and we believe that global central banks (primarily the US Fed) will almost inevitably return to monetary softening.

Taiwan: The Sino-US trade war has continued, with the TAIEX seeing a slump since end-July as President Trump announced to levy 10% tariffs on US$300 bn in Chinese imported goods and included China on its list of currency manipulators. As trade tension persists, we suggest investors not be too optimistic on the sides reaching an agreement during the scheduled September talks, and advise that investors remain cautious on potential risks.

Hong Kong: Cheap but risky is the theme for the Hong Kong stock market now. Aside from earnings reports, the Hong Kong market direction is being dictated by both the progress of China-US trade talks and local political events. Recent events indicate there should be no worsening of China-US trade relations for now. Regarding the HK protests, the HSI rose 1,000 points between Aug 13-19 following the end of the HK airport siege and largely peaceful protests last weekend. HK retail names may be ideal candidates for S-T rebounds, but L-T sustainable re-ratings are unlikely despite their cheap valuations. Defensive names in the food & beverage and sportswear sectors are our preferred choices. Our 12-month HSI range forecast remains at 26,000-30,000.

Shanghai: A-shares have climbed amid fluctuations in late August, supported by policy stimulus. The central government launched a series of policy catalysts, boosting the A-share market with ample liquidity. The PBoC unveiled reforms for the loan prime rate (LPR) quotation mechanism on August 17. The first LPR after implementation of the reforms was published on August 20, with one-year LPR of 4.25%, down 6 bps vs. the previous 4.31%. The purpose of unifying different rate quotation “tracks” this time is to lower financing costs for corporations, while curbing the asset bubble by maintaining some of the interest rates.

Korea: Many events are looming and the KOSPI’s sensitivity to such events is increasing. Under the circumstances, it is hard to find any clear factors that will boost the KOSPI. However, weak fundamentals have been mostly reflected in share prices and there are positive changes in forex rates and base effect for exports.

Indonesia: Market closed at 6,295 on Aug 20, down by 2.49% MoM, with pressure from global uncertainty due to the continued China-US trade war. Also, the inverted bond yield in the US suggests a possible recession in US in 1-2 years, which raises concern about global growth. This also led to weaker Rupiah by 2.37% MoM to IDR14,268 vs the USD. The 10-year gov’t bond yield jumped to 7.676% from its monthly low of 7.145%, but closed at 7.355% by the end of the month. Overall global uncertainty has pressured emerging markets, including Indonesia, where it has impacted asset classes, from equities to bonds and the currency.

Thailand: 2Q19 GDP came in at 2.3%, the lowest in 19 quarters, vs 2.8% in 1Q19. In order to boost the economy, the BOT in a surprise move lowered the policy rate by 25 bps and the government announced a stimulus package to boost tourism as well as free handouts to disadvantaged persons worth 0.5% of GDP starting in September 2019. We expect the market to move sideways down to the 1,580 level. We suggest staying defensive, with our top BUYs being CPALL, ADVANC, RS, BCH and SAPPE.