Yuanta Regional Strategy Monthly (June 2019)

Yuanta_Regional_Monthly_-_June 26 Yuanta_IN190626

Vietnam: Just wait ‘til next year. VNIndex declined 1.5% MoM to close at 960 on June 25, 5% off its YTD peak in March. Rangebound trading amid weakening daily turnover suggests further downside in the short term. As we anticipated, MSCI did not include Vietnam on its watchlist for Emerging Markets Index inclusion in its annual announcement released on June 25. Although we don’t think this came as a major surprise, the optimists will have to wait until next year for another try. Our view is until action is taken to address various concerns outlined by MSCI (especially foreign ownership limits), Vietnam is likely to remain a Frontier Market.

Macro: US demand momentum has dipped slightly, while demand in the eurozone and China has shown no notable improvement. The US Fed is maintaining a wait-and-see attitude, given a slower demand recovery and mild inflation. In the eurozone, May manufacturing and service PMI dipped, triggering more concerns on a recession and raising expectations for further loosening monetary policy in June. For Taiwan, the TAIEX saw corrections along with Asian stock markets, due to foreign investors’ continuous underweighting on rising tension between the US & China, despite more overseas fund flowback driven by favorable policies. Global oil prices are under pressure and will likely trend down between US$55-60/barrel, while the gold price will likely remain at US$1,270-1,300, supported by investors’ remaining sidelined prior to the Trump-Xi meeting at the G20 Summit.

Taiwan: In May, the TAIEX repeated the pattern seen in February 2018, closing down with long lower shadows in the candlestick chart and giving up gains from the previous two months, which implies range-bound consolidations seen in 1H19 will likely continue into 2H19F, at a range of 500-600 points. However, as Trump is taking a harder line against China in the trade war, global financial markets will likely see greater volatility in 2019F. Meanwhile, with the upcoming presidential elections in Taiwan and the US, we expect stock markets to see some support from the policy side. Overall, we believe 11,000 points (instead of 10,000 points) will be the key level at which the TAIEX will face downside pressure this year.

Hong Kong: HK benchmark Hang Seng Index (HSI) has had a roller-coaster performance in June MTD with a 6% gain. The gain was mainly from confirmation of talks between Chinese President Xi Jinping and US President Trump at the G20 Osaka summit on Jun 28-29. Dialogue between Chinese/US gov’t officials will also resume, giving the market expectations of a restart for China-US trade talks after the G20 Osaka summit. As such, the HSI soared 3.6% or 975 points on 19-21 June. Defensive F&B names, sportswear and education sectors are our preferred choices. Our 12-month HSI range forecast is maintained at 26,000-30,000.

Shanghai: The SSE Composite Index has returned to above 3,000 points recently, with trade volume expanding to >RMB600 bn. As of June 23, the Northbound capital influx reached RMB45.2 bn. FTSE Russell announced that it would include A shares in its global stock index system, to be effective from market open on June 24, 2019. This was another important breakthrough in China’s high level two-way opening up of its capital markets. We expect capital to continue to flow in after the FTSE Russell index inclusion.

Korea: Risks from the US-China trade war and an economic downturn remain intact. However, we believe the KOSPI has upside momentum, as the likelihood of trade war expansion is low, KOSPI-listed companies’ earnings growth is on a recovery path, the Fed has shifted to a dovish stance, and the KRW/USD rate peaked out.
Indonesia: Despite no clear direction in the trade war between the US-China, EM markets including Jakarta experienced a reversal of positive capital inflows in both bond and equity markets. The JCI recovered, rising 6.12% MoM to 6,315.436 while the gov’t bond 10Y yield dropped 62bps. This was also reflected in a stronger Rupiah, with growth of -2.24% MoM to IDR14,155 vs USD.

Thailand: With the strong SET Index performance YTD, we expect the SET index to trade sideways as the market is now trading at 16.4x 2019 PER (+1SD to the 5-year mean P/E). Fundamentally, SET EPS continues to be downgraded, currently forecasted at THB106/share for 2019 vs THB112/share at the beginning of the year.