Michael Kurtz: ‘Our standout preference at the start of 2013 is for the more trade-intensive and cyclically driven markets of North-East Asia.’

　　There's room for some much-needed cheer for the equity market of Northeast Asia compared with its other Asian counterparts, if Nomura International Ltd's outlook report for 2013 is anything to go by.

　　The securities heavyweight, while expecting the equity market in Northeast Asia to outperform its counterparts in the rest of Asia, is, however, underweight on most equity markets in Asean, including Malaysia.

　　“Within the broader Asia-Pacific ex-Japan region, our standout preference at the start of 2013 is for the more trade-intensive and cyclically driven markets of Northeast Asia,” Hong Kong-based Michael Kurtz, chief Asia equity strategist for Nomura International, told reporters at a media briefing yesterday.

　　“The overweight equity markets are, namely, Hong Kong, China, Taiwan and Korea.”

　　Kurtz said not only would these markets derive greater direct growth and earnings benefits from the pick-up in the US and Chinese demand, but they were also generally cheaper and either less heavily bought or more underweight in terms of consensus positioning than many of their Southeast Asian peers.

　　“Now we are seeing that the factors that had worked against the equity markets in Northeast Asia for the past two to three years are beginning to work in favour relative to Asean. It is not that there is anything fundamentally unattractive about the Asean space.

　　“The fundamentals are great for a five- to 10-year environment,” he said.

　　According to him, it is just that the Asean stock markets don't look cheap and look more crowded at the moment due to their defensive nature.

　　“So even though Asean will post absolute positive returns, we expect absolute returns to be even better in Northeast Asia. That is why we are overweight on the said region,” he elaborated.

　　In the report, Nomura said Asia-Pacific ex-Japan's earnings have historically been substantially leveraged to global growth (particularly Korea and Taiwan) and has a high beta, with a large percentages of market capitalisation in cyclical sectors such as technology, materials, industrials, energy and financials.

　　“For 2013, the current bottom-up consensus earnings estimates imply a 10.7 per cent growth, following the 5.5 per cent expected in 2012. Moreover, our house bottom-up forecast based on an 85 per cent coverage of regional market capitalisation implies a 13 per cent growth,” it said.

　　Besides being less optimistic on Malaysia, it is also putting an underweight call on Indonesia and the Philippines, while having a neutral stance on Singapore and a positive one on Thailand.