March 2017 Asia Market Outlook: Expecting the Unexpected · 2017-03-21 · March 2017 Asia Market...

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March 2017

Asia Market Outlook:

Expecting the Unexpected

Affin Hwang Asset Management Berhad (429786-T)

FOR PROFESSIONAL INTERMEDIARIES ONLY. NOT FOR PUBLIC DISSEMINATION

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Table of contents

► Where are we today?

► Market Outlook 2017: Asia

► Why Affin Hwang Absolute Return Fund II?

► How the Fund derives returns for you?

► Affin Hwang Investment Strategy


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Where are we today?


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2016 in Review: Bouts of Confusion and Shock

World Equities

+8.5%

US Treasury

+1.0%

US Dollar

+3.6%

Jan – Feb

China equity rout , oil slumped to

$26, BoJ negative interest rate,

Bank CoCo fear

Jun

Brexit blow Aug - Sep

BoE reintroduced QE,

negative yielding bonds

swelled to $13.4 trillion, DoJ

claim against Deutsche Bank

Nov - Dec

Trump’s victory, bond yield spikes,

OPEC output cut, Dow closed above

19,000 points, Fed raised 25 bps rate

Source: Bloomberg, as at 31 Dec 2016, in USD terms and on total return basis.

Mar - Apr

EM / Asia relief rally,

rate hike prospect

postponed


Asia Equities

+5.4%

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2017 investment landscape is broadly shaped by:

Undercurrent #1: From Globalisation to De-globalisation

Undercurrent #2: From Monetary Easing to Fiscal Boost

Undercurrent #3: From Deflation to Reflation


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After Brexit and US election, more political events to come:

The rush for the exit in Eurozone?

Dec 2016

Italian constitutional

referendum

1Q 2017

UK to trigger Article 50

Apr – May 2017

French presidential

elections

Sep 2017

German parliamentary

elections


Mar 2017

Netherlands general

elections

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Years of ultra-loose monetary policies are losing its effectiveness

Central banks recognise the limitations of monetary easing

Source: Bloomberg, Fed, ECB, BoJ, as at Dec 2016


US Federal Reserve European Central

Bank

Bank of Japan

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Trumponomics

Details are scarce

Trade

Tax

Fiscal Stimulus

Source: Bloomberg, as at Dec 2016


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Market Outlook 2017: Asia Equity


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-1.1

1.6

1.7

1.8

2.1

2.2

2.3

2.5

2.7

2.8

3.4

4.1

4.9

4.9

5.0

5.2

5.7

5.8

5.9

6.6

7.2

8.5

9.1

9.2

9.3

9.4

CRUDE OIL

Indonesia - Jakarta Composite Index

Japan - Nikkei 225 Index

Blomberg Asia REIT Index

Thailand - Stock Exchange of Thailand

UK - FTSE 100 Index

Japan - TOPIX

Australia - ASX200 Index

MSCI Europe

Korea - Stock Exchange KOSPI Index

Shanghai Shenzhen CSI 300 Index

FTSE Bursa Malaysia KLCI Index

Philippines - Composite Index

US - S&P 500

FTSE ASEAN40

MSCI AC World Index

India - S&P BSE India Sensex

Gold

Taiwan - Stock Exchange Weighted Index

MSCI Asia ex Japan Infrastructure

Singapore - Straits Times Index

MSCI AC Asia ex Japan Small Cap

Hong Kong - Hang Seng Index

MSCI Emerging Markets

MSCI Asia ex Japan

FTSE Bursa Malaysia Small Cap Index

YTD Indices Performance (Local Currency)

Source: Bloomberg, 15 February 2017

Asia / EM is the

top performer

so far this year


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What is in store for Asian investors in 2017?

► Upside surprise on macro data

► Rebound in pricing power positive to corporate earnings

► Valuation and sentiment suggest equity is attractive

► Fundamental improvement to drive the valuation multiple

expansion

► Impact from US trade protectionism

► USD factors vs Asia performance


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Asia macro data has been surprising on the upside

-80

-60

-40

-20

0

20

40

60

80

Jan-2014 Jun-2014 Nov-2014 Apr-2015 Sep-2015 Feb-2016 Jul-2016 Dec-2016

Citi Economic Surprise Index - Asia Pacific

US Election

The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases

have been stronger than expected and a negative reading means that data releases have been worse than expected.

Source: Bloomberg, 17 Feb 2017


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China’s measures to cut overcapacity yielded positive results so far

The return of pricing power for the industrials, boosting the earnings growth

Regain pricing power

It allows the factories to consider to

raise price as industrial restocking.

Positive to profit margin recovery

Source: CEIC, J.P. Morgan estimates, Sep 2016


Source: WIND, Deutsche Bank Strategy Research, 15 Dec 2016

Resume the trend of earnings

growth

Corporate earnings have grown 16%

in 9M16, underpinned by industrial

policy and commodity price rebound.

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Broad based earnings revision continues to spread over, reversing the

the earnings downtrend since 2014.


Source: Deutsche Bank, as at 9 February 2017

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Infrastructure story is taking shape in Asia:

Asian governments ramp up infrastructure spending

Philippines

High hopes for the new

administration’s pledge on

infrastructure spending

Indonesia

Subsidy savings and tax

amnesty revenues to

support infrastructure

funding

Malaysia

High contract flow and

construction activity to sustain

growth momentum

Source: Bloomberg, as at 20 January 2017


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Asia equity valuation is way below the long term historical averages

Investors may need to take risk to monetise the cheapness of Asia equities


The aggregate valuation measure consists of historical PE, prospective PE, Price/Book, Dividend Yield and an Earnings yield/bond yield

indicator. Source: CEIC, UBS, 17 February 2017;

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Bearish sentiment towards Asia eased, reverting to long term neutral

levels

Historically, panic levels imply potential upside returns over 12-month horizon

Source: BofA Merrill Lynch Global Research, Factset, 20 February 2017

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Trump’s trade protectionism is a risk to Asia supply chain

US – China trade dispute could send ripple effects to Asia economy


Source: JP Morgan, December 2016

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USD strength inversely correlated to EM / Asian equity performance


Source: Citi Research, 19 December 2016

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What is our take for 2017?

► Learn to adapt the changing global political

landscape

► Taking cues from UST bond yields and USD

strength

► Expect market cycles to be shorter and sharper


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Affin Hwang AM Investment Strategy

Tactical positions

Intend to uncover

short term tactical

opportunities

Secular Growth

This allocation will be invested

into stocks with long term

secular growth prospects

Dividend Yield

This position seeks to invest into

dividend yielding stocks, potentially

providing steady income for

investors.


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Three Key Themes


Reflation Domestic

Asia Oversold α

Banks

Insurers

Industrials

Commodity

Consumer

Tourism

Infrastructure

Dividend yielders

REITs

Exporters

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Disclaimer

This presentation has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”)

specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation

belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written

consent of Affin Hwang AM.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and

expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in

the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information

and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or

implied warranty as to the accuracy and completeness of any such information and/or Opinions.

As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although

attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may

arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk

arising out of and/or in connection with the financial product.

Affin Hwang AM is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make

their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal,

accounting, taxation or investment matters and should consult their own advisers.

Affin Hwang AM and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any

other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing

in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities.

Neither Affin Hwang AM nor any of its directors, employees or representatives are to have any liability (including liability to any

person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or

implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot

be excluded.


March 2017 Asia Market Outlook: Expecting the Unexpected · 2017-03-21 · March 2017 Asia Market...

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Transcript of March 2017 Asia Market Outlook: Expecting the Unexpected · 2017-03-21 · March 2017 Asia Market...