Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 28 May 2014 at 14:10 GMT

Japan's Mitsubishi leads top picks of Asia Pacific equities

Head of Equity Strategy / Saxo Bank
  • Asia Pacific equities lagging global trends over last five years
  • Bank of Japan monetary policies helping to create positive backdrop for Japanese equities
  • Mitsubishi UFJ Financial top pick based on relative cheapness

By Peter Garnry

Asia Pacific has not been a great equity story since the financial crisis with the region up only 41 percent in the last five years, significantly underperforming global equities driven by weak performance in Japan and China.

MSCI All-Country Asia Pacific Index share price the past five years
MSCI AC Asia Pacific Index share price
Source: Bloomberg

The stimulative monetary policies implemented by the Bank of Japan has pushed USDJPY from just below 80 to 102 importing inflation through higher energy prices. But the policy move has on the margin helped stimulate investor and business sentiment. While economic growth is not expected to be stellar in Japan (1.4 percent in 2014), the inflation means that nominal growth is expected to be 4 percent in 2014, the highest in eight years, creating a positive equity environment.

As a result, our Asia Pacific equity forecasts are dominated by Japaneses equities and especially financials which makes sense as cyclical stocks often perform better in a positive equity environment. The table below shows the top 10 equity picks in the region with Mitsubishi UFJ Financial as the top pick. The 12-month return forecast is 26 percent.
Asia Pacific equities top picks

Mitsubishi UFJ Financial is currently trading at 0.7 on price-to-book which is very cheap for a mega financial with a strong franchise and potential upside to ROE, the key driver of equity return in the financial sector. The bank is also the one in Japan that is seeing the best top line growth which in our opinion is not reflected in the share price.

Nomura, which is also on our top pick list, is up 12 percent since we recommended being overweight based on valuation and recent declines.

Read our full publication on Asia Pacific equities in the attached PDF.

-- Edited by Martin O'Rourke

Peter Garnry is head of equity strategy at Saxo Bank. For more of his analysis and opinion please click here

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Quant Corner- Asia Pacific equities


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