Deutsche Bank has made its first-ever bearish call on Asian equities since it began publishing its monthly Asian strategy report in July.
The bank expects modest gains in most markets into the new year but it believes Asia-Pacific markets will peak and turn lower during the first quarter.
'We are now turning bearish because we feel the factors which have driven the rally are largely played out,' the brokerage said in the report, citing potential disappointments in earnings forecasts, a bottoming out of the US dollar and expensive valuations.
'If the US dollar is near a turn, we suspect Asian equity markets are approaching a turning point as well,' the report said.
'We do not think markets are pricing enough risk - low implied volatility and record low high-yield credit spreads suggest a degree of complacency, which is not warranted at a time when the global trade cycle is slowing rapidly.
'To us, the Macau mania and recent corporate governance blow-ups are indicative of a market nearing a top.'
The bank suggested investors take profits into the upcoming gains and adopt a defensive posture ahead of an arduous first half next year, such as keeping more capital in cash and short-term trades.
