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1、Global ResearchAPAC Equity Strategy2020: can better growth justify valuations?After recent GDP upgrades, we raise our earnings and index forecastsAfter the recent trade truce, UBS raised our China 2020 GDP growth forecasts from 5.7% to 6.0% and lifted growth across the region. Our economists think A
2、sian growth likely troughed in Q4 2019 and will accelerate, sequentially, from here.2019*5 business caution alongside accelerating growth should boost earningsWeve highlighted that good cost control, disciplined capex and inventory adjustment suggest better eamirgs ir 2020. Wed previously expected m
3、odest earnings recovery as growth troughed in Q1 and gradually recovered. We now raise our forecasts for EPS growth from 8% to 11 % to reflect the better macro backdrop and earlier recovery. In the short-term, our cyclical indicators still suggest some downside to eps revisions, but the picture for
4、the year as a whole looks positive.With absolute valuations above average, low rates and EPS pick-up are vitalWe raise our index targets for MSCI Asia ex Japan to 725 and TOPIX to 1900 to reflect the better EPS backdrop. At 13.7x forward P/E, Asian equities are already trading above their long-run a
5、verages, suggesting an earnings recovery and low rates are being priced-in. While we see scope for relative valuations to improve if bond yields remain well-anchored, our base case is that multiples hold as bond yields remain low and earnings recover. A stronger recovery - if that brought about high
6、er yields - could pose a challenge to multiples.A modest tilt to cyclicals and moving overweight JapanAgainst our more positive growth backdrop we lift our exposure to cyclicals slightly. Tech and Consumer discretionary are expensive relative to the state of the recovery. However Industrials and Mat
7、erials offer better value around the region. At the market level, we tweak our scorecards to reflect a tilt toward cyclicality. We continue to focus on markets where self-help is evident. Our core overweight remains China, but we move Overweight Japan and Korea, while hedging some cyclical exposure
8、with an underweight in now very expensive Taiwan. We lower Indonesia, The Philippines and Singapore to neutral from overweight.OverweightNeutralUnderweightChinaSingaporeTaiwanKoreaIndonesiaHong KongJapanIndiaAustraliaMalaysiaThailandPhilippinesFigure 1: Market recommendationsSource: UBS3 January 202
9、0Equity StrategyAsia PacificNiall MacLeodStrategist +852-2971 6186Matthew GilmanStrategist +852-2971 8173Jiamin ShenAssociate Strategist +852-3712 3126This report has been prepared by UBS Securities Asia Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 23. UBS does and seeks to
10、do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.EPS GRO
11、WTH (+)AGOLDILOCKS(Bond Yields 4* and EPS growth 个)Favour: Hong KongInternet stocks (Growth stocks with cyclicality)Dis like: Japan (stronger JPY)Figure 20: The Axes of UncertaintyCYCLICAL PICK-UP(Bond Yields 小 and EPS growth 个)Favour: Korea/Taiwan (cyclicals);Japan (cyclical + weaker JPY)Value stoc
12、ks; Australia (if commodities rise)Dis like: Philippines/lndia (Growth stocks)Hong KongYield sensitive defensivesWhich is consistent with what our axes of uncertainty framework also suggestsBOND YIELDSOND YIELDS (+)INFLATION SURPRISE(Bond Yields 个 and EPS growth 3)Favour: Commodities (if driving hig
13、her inflation)Japan (weaker JPY), especially financials (rising yields)Defensives with low yield sensitivityDis like: Philippines/lndia (Growth stocks)Hong Kong (yield and China growth sensitive)Internet stocks (more cycle dependent growth stocks)GROWTH SHOCK(Bond Yields and EPS growth 叼Favour: ASEA
14、N (lower bond yields)India (lower bond yields + growth stocks)Defensives, Growth stocks (Staples & Health Care)Dividend yieldsDislike: China, Hong Kong, Taiwan, Korea, Japan, Australia, Cyclicals and ExportersEPS GROWTH (-Source: UBSFigure 21: Whats priced in to our Axes of Uncertainty?CYCLICAL PICK
15、-UP(Bond Yields 个 and EPS growth 个)EPS GROWTH (+)个GOLDILOCKS(Bond Yields and EPS growth 个)The market today seems to be pricing in a relatively benign monetary backdrop, as well as some cyclical improvement.OND YIELDS (+)2020?BOND YIELDS (-、INFLATION SURPRISE(Bond Yields 个 and EPS growth 3)GROWTH SHO
16、CK(Bond Yields 3 and EPS growth 4*)VEPS GROWTH (-)Source: UBSFigure 22: MSCI Asia ex Japan index target and upside/downside scenariosMSCI AC Asia exJapan (MXASJ)850800USS691Upside to Downside1 to 1.5EPS 9rowth Implied2019 2020 2021 consP/EUBSe UBSe Cons (2021e)750700650600550500201820192% 14% 14% 13
17、.2x-3% 11% 14% 13.2x-6% 0% 14% 12.1xUpside: +11%Base:+5%Downside -17%In our base case, we think earnings can now grow by 11%, and with a return to average multiples, this drives our Index target of 725 for MSCI Asia ex Japan.If global growth deteriorates considerably, we see downside to 1.2x book, o
18、r around 12x current earnings, in line with historical asset value troughs.Source: UBSSource: UBSFigure 23: MSCI Asia ex Japan index target Ready Reckoner based on various EPS and P/E assumptions(note: we assume consensus 14% EPS growth in 2021 for all scenarios)7ft 1 Q 2 *7n7n 匚PScsin .XV 1 7 OC AV
19、Xv Ci O grVWLII dooUi lipLIWINegative RisksBase caseBetterConsensusBest caseFwd P/E-3% / 0% -3% / 8%-3%/II%-3% / 14%+2%/ 14%+2% / 20%average since 2011-11.8577623643661690727USTsat current level (1.85%) and EY- BY gap returns to ave since 2011-12.7620670692711743782Peak P/E multiple in 201S-17reboun
20、d period -13.1640691714733766807long-run average -13.2645697720739772813USTs at 1.5% and EY-BY gap returns to ave since 2011 -13.3650702725745778819USTs at current level (1.85%) and EY-BY gap returns to ave since 2005 -14.2694749774795831875USTs at 1.5% and EY-BY gap returns to ave since 2005 -15.07
21、33791818840878924USTsat current level (1.85%) and DY-BY gap returns to ave since 2011 -16.0782844872896936985USTs at 1.5% and DY-BYgap returns to ave since 2011 -19.092810031036106411121170Source: Datastream, UBSOur ready reckoner shows how our index target would vary under different EPS and P/E ass
22、umptions, especially if rates remain low and relative valuation gaps close to bonds.Figure 24: Japan: UBS analyst EBIT margin forecastsSource: UBS. Note: calendarised December year end for JapanFigure 25: Japan: UBS analyst revenue growth forecastsFigure 26: TOPIX mkt implied ROE vs. actual trailing
23、 ROESource: IBES, MSCI, Datastream, UBSFor Japan we see a similar story to Asia ex Japan - better growth helping lift margins and revenues. This is what is being forecast by our analystsBut revenue forecasts remain low if there is a cyclical recovery, there is some scope for a modest lift to revenue
24、 forecasts.Moreover, the market remains deeply sceptical about the sustainability of ROE, let alone a cyclical pick-up in 2020. We see some upside potential to valuations in Japan, alongside a cyclical improvement in earnings.Figure 27: TOPIX price-to-book since 20060.70.5 Valuations remain below th
25、e levels of Abenomics era, and we see scope for an earnings recovery to push multiples higher.Figure 28: Our TOPIX index target and upside/downside scenariosTOPIX1,721P/BVImplied2,3002,2002,0951.44x2,1002,0001,530 +12 mo.Source: UBS1,9001.31x1.05xUpside to Downside2 to 1Upside:+22%Base:+10%Downside:
26、 -11%Source: UBSWe target the TOPIX at 1,900 at end-2020.This would leave Japan on 14.1x forward earnings based on current consensus estimates at the end of next year.Market recommendationsFigure 29: Cyclicals vs defensives P/BV & US ISM new orders index09988776651OOOOOOOOO寸 L c nNon Commodity Cycli
27、cals (ex Internet) vs. Defensives P/BVAverageUS ISM New OrdersAfter our economists1 Asian growth upgrade, we have increased our weighting to75 cyclicals. However valuations are already somewhat high for thisr 65 point in the cycle.- 5545- 3525Figure 30: P/BV of major cyclicalsFigure 31: Asian corpor
28、ates are cutting costs and capex ahead of revenues slowing25%20%15%10%5%0%Revenues (last 12m / prior 12m)SG&A (last 12m / prior 12m)Capex (last 12m / prior 12m)Source: Datastream, UBSThis reflects the outperformance of Tech. Traditional cyclicals - especially Materials and Industrials look more attr
29、actively valued.We continue to think that self help is likely to be a key theme in driving earnings, particularly as demand recovers.6OCXJLH二。Z lhLnsCXJLHC05CXJlhZOCXJELOCXJlhSource: Bloomberg, UBS APAC Equity StrategyFigure 32: SCORECARD #1: Themes & Macro scorecard (higher scores are better)1. Che
30、ap CyclicalsCyclicals P/BV valuations vs. history2. Cyclical exposure Cyclical sectors market cap as % of the total market3. Self-helplyr change in SG&A and capex-to-sales ratiosTOTALKorea+1.0+1.0+2.0China+0.5+1.0+ 1.5Japan-0.5+1.0+0.5India-0.5+0.50.0Philippines+1.0-1.00.0Thailand-0.5+0.50.0T aiwan-
31、0.5+1.0-0.50.0Australia-1.0+0.5-0.5Indonesia+0.5-1.0-0.5-1.0Malaysia-1.0-1.0Hong Kong-0.5-1.0-1.5Singapore+0.5-1.0-1.0-1.5Source: Thomson Reuters Datastream, UBSGiven our economists now believe that Q4 marks the cyclical trough, we turn slightly more cyclical in our scorecards.The challenge for us i
32、s that some of the more cyclical markets are reflecting a recovery already (especially Taiwan).We continue to like cost and capex discipline.Figure 33: SCORECARD #2: Equity fundamentals scorecard (lower rank is better)Our second scorecard continuesP/Book relativeFwdP/E relative vs. lOy ave(std devs)
33、RankImplied LT growth vs.1 Oy ave (std devs)Rank2019-20213m3mchange in 3mEPSrevisionRankAVE RANKrevision to FY2 EPSRankvs. lOy ave(std devs)RankEPSCAGRRankKorea-1.8411.25120.70425.2%1-1.6%63.7%34.5India0.40100.3581.11819.5%21.0%26.2%15.2HK-1.643-2.9410.4937.5%8-2.7%100.5%85.5Malaysia-1.514-1.3240.95
34、66.0%10-1.0%53.1%45.5Indonesia-1.672-0.8260.96711.0%5-2.1%70.5%75.7China0.3790.1371.13913.0%3-0.2%31.1%56.0Philippines-1.425-1.5131.51109.6%6-0.5%40.2%96.2Japan0.108-0.8850.3426.8%9-2.3%80.8%66.3Singapore-1.416-1.902-0.2314.6%11-2.4%90.0%116.7T aiwan1.32120.71102.131212.3%43.7%15.5%26.8Thailand-0.86
35、70.4891.86118.4%7-6.0%12-0.6%129.7Australia0.88111.00110.7352.7%12-2.9%110.0%1010.0Source: Thomson Reuters Datastream, UBSto capture equity fundamentals through valuation and earnings momentum scores. Korea has now moved to the top of this scorecard thanks to improving earnings momentum trends (slow
36、ing pace of downgrades).Australia (expensive with poor earnings), Taiwan and Thailand also look unattractive, though Taiwans earnings revisions have improved.Figure 34: . bining the two scorecards11098765432Least Attractive4 Australia ThailandThe combination of the two scorecards provides the framew
37、ork for our market recommendations.Werecommendunderweightpositions in the markets in red, and overweight those in green.Taiwan SingaporeJapanHnno Ken。t In.点 PhilippinesHong Kgg /mysia India China KoreaMost Attractive-3.0-2.0-1.00.01.02.03.0Macro & Themes Scorecard RankSource: UBSOverweights - China
38、our core overweightFigure 35: MSCI China P/E ratio and excluding financials and internetSource: IBES, Datastream, UBSFigure 36: China vs. Asia ex Japan 3m EPS revisionsSource: IBES, Datastream, UBSFigure 37: MSCI Korea price-to-book and ROEFigure 38: Korea and Japan 3m EPS revisionsSource: IBES, Dat
39、astream, UBSNeutralsOVERWEIGHT CHINADespite being at the heart of the trade dispute with the US, Chinese earnings have held up relatively well compared to the rest of Asia ex Japan.Partly this reflects the cost and capex discipline that we have been highlighting.Against this backdrop and with an acc
40、elerating economy early in 2020, we think equities offer good value.OVERWEIGHT KOREA AND JAPANValuations are attractive, especially in Korea, and the earnings momentum trends are improving. Both markets are therefore looking better on our scorecards.Given our more positive cyclical view we think the
41、se two markets could perform better in 2020.Equity valuations are attractive and Indonesia should remain supported by easy global monetary policy. Policy measures focussed on macro stability and attractive asset prices (e.g. real bond yield) should limit the risk of capital outflows in the event of
42、a risk-off scenario.Figure 41: Philippines fwd PE& P/BVPhilsfwd P/EPhils trP/BVSource: IBES, Datastream, UBSFigure 42: Philippines core CPI YoY7%6%5%4%3%2%1%0%10 11 12 13 14 15 16 17 18 19Source: Haver, UBSFigure 43: MSCI Malaysia forward PESource: Thomson Reuters Datastream, UBSFigure 44: Malaysia
43、real effective exchange rateSource: Thomson Reuters Datastream, UBSFigure 45: P/E valuations of Indias SOEs vs. the Growth stocksSource: IBES, Datastream, UBSUS 3m EPS revision%Figure 46: US corporate tax cuts supported US performance in 2018Source: IBES, Datastream, UBSNEUTRAL THE PHILIPPINESThe Ph
44、ilippines P/BV is at decade lows and the economy should be relatively insulated from the trade war. Falling inflation, slowing credit growth and improving current account are encouraging signs that overheating risks have diminished.NEUTRAL MALAYSIAValuations and earning revisions are not especially attractive, but the cheap currency continues to offer support.NEUTRAL INDIAIndia screens relatively poorly still on our scorecards. Valuations are expensive, especially in the growth sectors, but earnings momentum should improve on the back of the recently annou