Asia, and China in particular, has been touted as the driver pulling the crisis-infested developed world away from the brink of a global financial cliff.
But from now on, the opposite could be true. That’s because the region has sat idle in the shadows of asset booms induced by rounds of the so-called quantitative easing by the U.S. Federal Reserve (Fed) while the United States and Europe have been busy shaking things up and raising productivity.
This lackluster prognosis, delivered by the research team at Nomura in its 2014 annual outlook report titled “The end of the end of the world,” concludes that Asia’s fundamentals have been weakened by strong capital inflows, systematically loose monetary policy and a lack of structural reforms since 2008.
Even with a global recovery in exports, the report predicts Asia’s GDP growth, apart from Japan, to fall below 6.0% in 2014. “In other words, Asia will rely more on the rest of the world for growth, not vice versa,” it says.
The Nomura team expects Asia’s corporate earnings growth in 2014 to come mostly from leverages to the global economy and the global trade cycle.
Excluding Japan, the team forecasts 13% earnings growth for the Asia-Pacific, driven more by emerging countries, with 16% projected growth, than by developed countries, at only 9%.
The consensus readings for 2014 earnings-per-share growth currently stand at roughly 12% for the Asia-Pacific, split between 10% for developed countries, excluding Japan (that is, Australia, Hong Kong and Singapore) and 13% for emerging Asia.
The outperformers are expected to be found in cyclical sectors such as industrials (including capital goods and transportation), at an earnings growth rate of 27%; materials at 22%; consumer discretionary (from retailing to restaurants) at 14%; utilities at 15%; tech at 12%; as well as defensive sectors such as healthcare, at 17%.
By company, the leaders in Nomura’s 2014 list of 21 ‘all-star’ stocks are: Canadian Solar CSIQ -0.17%, at 220% expected earnings growth; China’s BYD , at 169.5%; and Korea’s Medy-Tox and SK Hynix , at 54% and 46% respectively.
Only one Hong Kong company is on the list: Hutchison Whampoa Ltd, which is expected to see a decent earnings growth of 15%.
The full list of the 21 all-stars includes: Hutchison Whampoa, China Oilfield Services Limited, BYD, China Longyuan Power Group Corporation, China Resources Gas Group Limited, Sa Sa International Holdings, Canadian Solar, AutoNavi, SK Hynix, Naver Corp, LG Chem, Medy-Tox, MediaTek, Catcher Technology, HCL Technologies, Maruti Suzuki, Lupin, CIMB Group Holdings, Sembcorp Marine, CapitaMalls Asia, and QBE Insurance Group.
By country, the region’s outperformers are Korea, Philippines and Malaysia. And the laggards? China, India, Indonesia and Thailand.
“A debt-fuelled asset-price boom stimulates growth, but not forever,” Nomura warns. “Asia is at the stage where the best outcome, in our opinion, would be a gradual fading of the boom, which tighter policies can help administer.”
To catch up, the team recommends relaxing restrictions on foreign direct investment (FDI), removing fuel subsidies, accelerating privatisation, opening up service sectors, lowering employment protections and liberalising capital markets.
If it neglects this hard work, Asia “will become a breeding ground for future financial crises,” Nomura warns. Indonesia and India had the first taste of things to come when they encountered panic capital flight in May, as a result of the Fed’s tapering scare.
forbes.com
But from now on, the opposite could be true. That’s because the region has sat idle in the shadows of asset booms induced by rounds of the so-called quantitative easing by the U.S. Federal Reserve (Fed) while the United States and Europe have been busy shaking things up and raising productivity.
This lackluster prognosis, delivered by the research team at Nomura in its 2014 annual outlook report titled “The end of the end of the world,” concludes that Asia’s fundamentals have been weakened by strong capital inflows, systematically loose monetary policy and a lack of structural reforms since 2008.
Even with a global recovery in exports, the report predicts Asia’s GDP growth, apart from Japan, to fall below 6.0% in 2014. “In other words, Asia will rely more on the rest of the world for growth, not vice versa,” it says.
The Nomura team expects Asia’s corporate earnings growth in 2014 to come mostly from leverages to the global economy and the global trade cycle.
Excluding Japan, the team forecasts 13% earnings growth for the Asia-Pacific, driven more by emerging countries, with 16% projected growth, than by developed countries, at only 9%.
The consensus readings for 2014 earnings-per-share growth currently stand at roughly 12% for the Asia-Pacific, split between 10% for developed countries, excluding Japan (that is, Australia, Hong Kong and Singapore) and 13% for emerging Asia.
The outperformers are expected to be found in cyclical sectors such as industrials (including capital goods and transportation), at an earnings growth rate of 27%; materials at 22%; consumer discretionary (from retailing to restaurants) at 14%; utilities at 15%; tech at 12%; as well as defensive sectors such as healthcare, at 17%.
By company, the leaders in Nomura’s 2014 list of 21 ‘all-star’ stocks are: Canadian Solar CSIQ -0.17%, at 220% expected earnings growth; China’s BYD , at 169.5%; and Korea’s Medy-Tox and SK Hynix , at 54% and 46% respectively.
Only one Hong Kong company is on the list: Hutchison Whampoa Ltd, which is expected to see a decent earnings growth of 15%.
The full list of the 21 all-stars includes: Hutchison Whampoa, China Oilfield Services Limited, BYD, China Longyuan Power Group Corporation, China Resources Gas Group Limited, Sa Sa International Holdings, Canadian Solar, AutoNavi, SK Hynix, Naver Corp, LG Chem, Medy-Tox, MediaTek, Catcher Technology, HCL Technologies, Maruti Suzuki, Lupin, CIMB Group Holdings, Sembcorp Marine, CapitaMalls Asia, and QBE Insurance Group.
By country, the region’s outperformers are Korea, Philippines and Malaysia. And the laggards? China, India, Indonesia and Thailand.
“A debt-fuelled asset-price boom stimulates growth, but not forever,” Nomura warns. “Asia is at the stage where the best outcome, in our opinion, would be a gradual fading of the boom, which tighter policies can help administer.”
To catch up, the team recommends relaxing restrictions on foreign direct investment (FDI), removing fuel subsidies, accelerating privatisation, opening up service sectors, lowering employment protections and liberalising capital markets.
If it neglects this hard work, Asia “will become a breeding ground for future financial crises,” Nomura warns. Indonesia and India had the first taste of things to come when they encountered panic capital flight in May, as a result of the Fed’s tapering scare.
forbes.com
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