- 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
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.
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.
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