(Bloomberg) -- UBS Global Wealth Management, which manages $2.5 trillion globally, has been adding positions in Asia ex-Japan equities on expectations that an earnings recovery will lift prices in the coming year.
In its investment outlook, the world's largest wealth manager said earnings for the MSCI Asia ex-Japan companies could grow 10% next year, led by countries such as South Korea and Taiwan that will benefit from 5G technology. The key driver for the rebound would be cooling U.S.-China tensions, with a partial trade deal “increasingly likely,” according to the report.
As a result, average valuations could increase by as much as 5%, with equity returns coming in at low- to mid-teens, Head of Asia-Pacific Asset Allocation Adrian Zuercher wrote in the report. The MSCI Asia ex-Japan Index is trading at 1.4 times 12-month forward price-to-book ratio, slightly below its 10-year average of 1.45 times.
“The early signs of earnings stabilization and improving risk sentiment should drive Asian markets higher, in our view, especially amid central bank easing,” Hong Kong-based Zuercher said.
The optimism on Asia's earnings recovery echoes strategists at JPMorgan Chase & Co. who said earnings per share in the region's companies are ahead of expectations for the third quarter, pointing to sustained momentum.
Furthermore, not only will asset prices get inflated by monetary easing globally, but the liquidity flush will likely trigger a recovery in economic activity and macro indicators, already evident in improving regional semiconductor shipments, Zuercher said. The wealth manager is also factoring in U.S. dollar weakness over the next 12 months, which should bolster risk assets in Asia.
However, UBS is hedging its Asia ex-Japan equity investments by adding positions in 10-year U.S. Treasuries given the uncertainty of trade talks and still “fragile” global growth.
“We don't believe this should turn off investors from participating in the nascent earnings recovery in Asia in 2020,” Zuercher said.
To contact the reporter on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Ameya Karve
©2019 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
