First Half Not Exactly As Expected – So What to Expect in 2H?

- India and Indonesia look expensive — "In terms of straight valuations, both India and Indonesia now rank amongst Asia’s most expensive equity markets. Even adjusting for ROE, the premium now looks excessive. At the other end of the spectrum, one has Korea on single-digit P/E, but cranking out an above-average ROE; all hallmarks of an end-of-cycle for a cyclical market. China now also features amongst the cheaper markets based on P/E, P/CE and ROE; a market to look at for the second half."
- Defensive stocks are expensive — "Sector wise, the consumer defensives are amongst the most expensive whichever valuations you care to look at. They are also well held by the consensus. What comes out looking cheap is a combination of cyclical, tech hardware and the semiconductors. Amongst the interest sensitives, banks score well, as increasingly does real estate. The cheapest defensive is telecoms. Across the board, earnings revisions continue to decline, with the cyclicals underperforming. Appetite towards cyclicals or real estate remains low at present."
- Market is likely to weaken in summer — "We continue to believe that markets will weaken into August-to-September, driven by downward revisions to earnings, global growth fears, and continued tightness in Asian excess liquidity. The shift in our portfolio will be away from telecoms and towards greater cyclicality. Country wise, the biggest call will be whether to overweight China."
Citigroup Asia Macro Investigator 20100712

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