Asian Stocks Set for `Zero' Return, May Turn Negative, Deutsche Bank Says

Asian stocks are set for “zero percent” returns over the next 12 months as corporate earnings growth falters, according to Deutsche Bank AG. 

The brokerage is “underweight” in Taiwan, India and China, “neutral” on South Korea, Thailand and Indonesia, and “overweight” in the Philippines, Hong Kong, Malaysia and Singapore, strategists led by Ajay Kapur wrote in a report yesterday. 

“We could end up on the negative side of that zero expected return,” Kapur wrote, citing “impending earnings-per- share disappointments, high relative valuations in Asia, the probability of a stronger U.S. dollar, diminished pricing power, falling terms of trade and deteriorating free liquidity.” 

The MSCI Asia excluding Japan Index has climbed 5.5 percent this year, following a 68 percent surge in 2009. Gains this year have outpaced the 0.6 percent advance in the Standard & Poor’s 500 Index and the 5 percent increase in the Stoxx Europe 600 Index. Japan’s Nikkei 225 Stock Average has slumped 12 percent during the period. 

Kapur, who joined Deutsche Bank as head of the company’s Asian equity strategy team last month, advised investors to sell Asia shares before slowing earnings growth and a weakening global economy lead to further stock losses, according to an Aug. 27 report. 

‘Maximum Bullish’

The brokerage’s cautiousness contrasts with its views last year, when it had been “maximum bullish,” according to yesterday’s report. It’s also more negative than UBS AG, which said in a report yesterday it was “positive” on the region’s stocks, with the MSCI Asia excluding Japan gauge poised to rise to 570 by the yearend. The measure gained 0.2 percent to 511.6 at 10:41 a.m. Singapore time. 

Stock markets have fluctuated this year on concern Europe’s sovereign-debt crisis may spread globally and as data on U.S. housing, jobs and manufacturing failed to convince investors the recovery in the world’s largest economy is on track. 

Global stock markets surged yesterday, helping the MSCI Emerging Markets Index enter a so-called bull market after rallying 20 percent from a recent low and the S&P 500 erase its losses for the year. Equities advanced after Chinese output surged and the European Commission said yesterday the region’s economy may grow almost twice as fast as forecast in 2010. 

Deutsche Bank recommended a basket of 40 companies that include Agricultural Bank of China Ltd. and India’s Oil & Natural Gas Corp., saying that valuations are the “best, most reliable and persistent factor” in identifying stock picks. 

Agricultural Bank, China’s third-largest bank by assets, trades at 11.4 times estimated earnings, while ONGC, as India’s biggest energy explorer is known, is valued at 12.1 times forecast profits. The MSCI Asian index has a multiple of 13.6 times, according to data tracked by Bloomberg. 

“We are living in an unusually uncertain world,” Deutsche Bank’s Kapur wrote in the note. “Still, the region has supportive demographics for equities and remains a fertile ground for stock pickers.” Source: Bloomberg