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‘Can It Continue? Yes.’ Asian Stocks Push To Records As Hang Seng Dusts 30,000

Fade it? Not yet.

Another day, another ebullient session in Asia.

The regional benchmark passed its previous record closing high intraday for the second time this month as the MSCI AC Asia Pacific rose above 172.32, the closing record set in November 2007. It would eek out the record close at 172.62.

MSCI

This damn thing is up something like 26% YTD – another 9% to go and this year will best 2009, when it rose 34%.

MSCI2

And just to give you a little perspective, here’s the Asian benchmark versus the S&P and the Stoxx 600:

MSCI3

Oh, and in Hong Kong, the Hang Seng blew past 30,000 for the first time in a decade, ultimately hanging on to close at 30,003:

HangSeng

That, a day after soaring nearly 2%.

So can all this continue? Well, yes – or at least according to Goldman. We’ll leave you with some bullet points from the bank’s 2018 AsiaPac outlook:

  • Can the region perform in 2018 after a strong 2017? Yes; earnings growth and starting valuations are key factors. The current mix is constructive.
  • Growth/rate ‘jaws’ – how much will they narrow? 2018E global/regional GDP growth remains favorable at 4.0%/6.2%, which supports earnings. The risk to equities is from tighter financial conditions, which appear more a 2H18 concern.
  • China? Stable; GSe 6.5% GDP, steady monetary/fiscal policy, 6.8 12m US$/CNY. We remain bullish; favor New China and environmental themes.
  • Earnings? After 21% growth in 2017, we expect 14%/10% in 2018/19E. For 2018E, China, India, Korea lead (16-18%); Australia, Malaysia, Thailand lag (7-8%).
  • Valuation and positioning? Still reasonable. Regional forward P/E is 13.7x (+0.9 s.d.), in line with our top-down P/E model. Global funds are 530bp underweight; domestic investor flows are rising (esp. China, India).
  • Fade tech? Not yet. Growth remains strong, but valuation risks are rising.
  • Returns? We raise 12m MXAPJ target to 620 (565 previously) on better earnings & 13.4x P/E, implying 14% total return. Our 1Q18 target is 575 (+3% price gain).
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