Published September 1, 2009

Stocks 'in early phase of 3-5-year bull market'

Singapore expected to benefit from its direct domestic plays, says AMPCI

By LYNETTE KHOO

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GLOBAL equities are at the early stage of a three-to-five-year bull market, said Kerry Series, head of Asia Pacific Equities at AMP Capital Investors (AMPCI).

Optimistic outlook: Asian stocks could outperform on the back of stronger earnings growth and investor demand, according to AMP Capital Investors

Mr Series, who spoke to BT in Singapore yesterday, noted that Asian stocks could outperform on the back of stronger earnings growth and investor demand.

Despite the market run-up in the last few months, valuations are still at fair levels, he noted. Since March, Asian ex-Japan stocks have gone from historical lows of nearly one time price-to-book (P/B) to its long-term average of 1.8 to 1.9 times P/B.

This compares to a high of three times P/B. Return on equity (ROE) has bottomed to 11 per cent for the region.

'As the global and regional economies improve in the next year or so, we will see ROE rising back to 13-15 per cent,' Mr Series said.

'As the global and regional economies improve in the next year or so, we will see ROE rising back to 13-15 per cent.' - Mr Series

'Stocks ought to move in line with earnings from here,' he added. 'In Asia's case, earnings growth next year could be as high as 25 per cent but the return on equity only 15 per cent.'

Mr Series' optimism in Asian stocks is founded on the region's resilience amid the global financial crisis.

He also projected an asset allocation shift over the next few years as global investors shift their money away from the United States, Europe and Japan into Asia ex-Japan.

At the same time, the downside risk is muted, he added. While there is concern over the sustainability of economic recovery and the risk of inflation, Mr Series felt that these fears would not materialise in the next few years.

Stimulus measures by governments around the world have been supportive of growth and, if needed, governments would pour out more stimulus to sustain the recovery, he said. There is also a structural shift towards domestic demand driving Asian economies.

'I would recommend investors buy Asian equities now with the intention of holding them long-term for at least three to five years to benefit from this strong profitability that we will see in Asia in the next few years,' Mr Series said. 'Any sell-offs would be an opportunity to increase their exposure on Asian equities.'

He advocated a sectoral approach over a country-specific strategy, citing bright spots in financial services, property, retail, healthcare and tourism as well as in resources, commodities and energy sectors.

Singapore is expected to benefit from direct domestic plays such as the financial services, property, healthcare and tourism sectors.

For stocks in China, Mr Series also does not expect any tightening by the Chinese government to bring about further market correction. There is still cash on the sidelines that has not been put to work yet and this would mean that any correction will be shallow, Mr Series said.

In line with its investment view, AMPCI is raising its exposure in Asia through a newly launched AMP Capital Asian Equity Growth Fund and expanding its equities team in Asia. It currently has close to A$100 billion (S$120.7 billion) in funds under management.

Being one of the few financial institutions globally to hold a qualified foreign institutional investor (QFII) licence, AMPCI also invests directly in the China A-share market through its listed AMP Capital China Growth Fund.