Contrasting views on future of regional equities

PUBLISHED : Monday, 18 October, 2004, 12:00am
UPDATED : Monday, 18 October, 2004, 12:00am

A long-term trend shows that the Asia-Pacific equities markets will continue to improve, according to the United States-based technical analysis team headed by Louise Yamada of Citigroup Global Markets.

Of nine Asian equity markets the team have following, five of them - Australia, Singapore, Hong Kong, Indonesia and India - were rated 'buy' while the others - China, Japan, Malaysia and Taiwan - were rated 'avoid', Ms Yamanda wrote in a report.

'Even though these markets are rated 'avoid', in each case, the trend of those markets is improving,' she said, adding the four markets were put on a 'technical upgrade alert'.

Japan and emerging Asian markets were taken off the 'technical downgrade alert' list.

'Emerging Asia has improved steadily on both an absolute price and relative basis over the past three months. Intermediate-term models for emerging Asia are rated 'buy' and moving toward overbought levels, which is a sign of strength,' Ms Yamada said.

Japan, which has underperformed over the past three months, had started to turn around, she said, while cautioning that she needed to see more follow-through to the trend of outperformance before it could be considered for an upgrade.

The chartist read the technicals for Hong Kong's Hang Seng Index as positive on both an intermediate and long-term basis. While the weakness in the market in the past two years was dramatic, the pullback has held above a long-term trend line drawn off the 1989-98 lows.

Ms Yamada projected a Hang Seng Index target of 16,000 to 18,000 points, about 23 to 38 per cent from current levels, with a support level near 11,000 and a resistance level at 13,500 to 14,000.

The regional equities markets last week saw significant volatility and many sought a safe haven in telecommunications plays and avoided commodity stocks.

Deutsche Bank, however, suggested a contrarian view of trimming positions in telecoms but cherry-picking in the basic materials sector.

'Our quantitative models ... point to a significant underweight position [in telecoms],' the brokerage said in a report, which emphasised evidence of a deteriorating growth base, growth quality issues, valuation problems and evidence of significantly underestimated capital expenditure requirements in the telecoms sector.

It has a 'sell' recommendation for China Mobile, China Unicom, Telekom Malaysia, KT Freetel and LG TeleCom of South Korea.

Despite the sharp sell-off of basic material counters last week, 'it is the basic materials sector that is offering some of the most attractive value and growth characteristics in our models at present', the brokerage said.

It pointed to continued strength in growth, with capital returns now forecast to peak next year rather than this year.

Among the buy lists in the sector suggested by Deutsche Bank are BHP Billiton of Australia, Beijing Yanhua Petrochemical, Shanghai Petrochemical, Yanzhou Coal and India's Associated Cement.