Asia equities have not yet emerged out from under the headwinds of
capital flight, currency weakness and deteriorating growth. However,
from this point on, such headwinds are likely to drive a greater wedge
between country performance rather than broad-based regional
weakness. Policy makers have finally woken up to the severity of the
currency situation and are responding. Even if it is too little too late,
policy action has reintroduced some two-way volatility.
We wait for
evidence of currency stability before positioning for a reversal in
underperforming markets (India & Indonesia). We prefer those with
improving fundamentals (China) or leveraged to a global recovery
(Korea, Taiwan & Singapore). Malaysia has a solid outlook but is likely
to lag if markets rally and lose its immunity premium if markets fall.
We therefore make a non-consensus call and cut to underweight.
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