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Yuanta Regional Strategy Monthly (March)

20/03/2019 - 08:31

Macro: Momentum for the US economy is decelerating, while political and economic risks in the Eurozone are lingering. China and the US are likely to make progress in trade talks. With the impact of the government shutdown, 1Q19 demand in the US has decelerated. The US Fed has delayed rate hikes until better outlook visibility. For Taiwan, the TAIEX may consolidate at a high level, with limited upside after rebounding. Trade talks have likely already been factored in, and fundamentals are moderate for 1Q19.

Taiwan: With the Sino-US trade war easing in 2019, the TAIEX has gained 1,100 points, with net buying of NT$77.5 bn YTD. However, listed companies are facing downward sales pressure in 1Q19F as global demand has dipped from the recent peak. Investors should watch for greater TAIEX fluctuations in April.

Hong Kong: After a 14% advance in the first two months of this year, the Hong Kong benchmark Hang Seng Index (HSI) has entered into a consolidation phase with 0.7% absolute gains since the beginning of March. This can be explained by the fact that investors are adopting a “wait-and-see” attitude following the index’s rise YTD. More absolute upside on the HSI will come only when a concrete trade agreement is reached between China and the US. We maintain our 12-month HSI range forecast at 26,000-30,000 points. We initiated Nissin Foods with a BUY rating due to its improving 2019F business outlook.

Shanghai: Given higher volatility seen in both the SH and SZ markets recently, total turnover in these two markets has contracted to RMB750 bn, indicating pressure from the market’s position adjustments. With the Two Sessions officially ending last week, the Premier of the State Council Li Keqiang said in an interview that China has revised down its economic growth forecast within a range, and the government will not allow China’s economic growth to fall below a reasonable range.

Korea: Major events, such as an end to the Sino-US trade war, have been delayed. Economic indicators and stock supply-demand dynamics are also too weak to support a sharp rise in the KOSPI. Meanwhile, expectations are growing that OECD composite leading indicators (CLK) for Korea as well as other macro indicators will bottom out. We expect the KOSPI to see a gradual rise as the macroeconomic recovery is reflected.

Indonesia: Both the JCI and Rupiah seem to have moved sideways in the past month as the JCI fell only 0.8% MoM while the Rupiah dropped 1.3% YoY due to a lack of new market catalysts. Several result announcements confirmed most results are in line with expectations, with little positive surprise. The market continues to be in “wait-and-see” mode, as major companies such as telecommunication and consumer are yet to release results.

Thailand: The SET Index closed down 1.2% in Feb. The long-awaited general election is on March 24, 2019 and early voting during the last weekend points to a record turnout. The vote this time is divided between pro-military and pro-democracy. The market is nervous about a deadlock, where neither the pro-military parties nor pro-democracy parties are able to form a government of more than 250 MPs. Additionally, April is the long Songkran holiday followed by the coronation of the 10th King from the 4-6th of May. Until the formation of a new government (third week of May), we can expect a “wait-and-see” attitude for the market.

Vietnam: The VN Index floated past our year-end target of 990 on March 12 and remained above 1,000 as at March 15, when it closed at 1,004 (+5.6% MoM, +12.5% YTD). Turnover has also picked up, averaging VND3.8 trillion per day since investors returned from the New Year holiday, an 87% increase in ADT vs the Jan-Feb period leading up to New Year. Our sense is that Index levels and momentum are likely to take a breather given steep valuations (e.g., VIC’s 106x P/E multiple) and external uncertainties. We continue to believe that the endogenous risks are skewed to the upside given very low expectations for capital market policy reforms, especially for solutions to the myriad issues related to FOL regulations.

Yuanta_Regional_Strategy_Monthly — March 19, 2019