Asian Markets – Different Actors, Same Script

- The view amongst investors is that these markets are unusual/different — "The good news is, they are not. If we take the performance of the market since the turn in earnings, the region is up the same percentage as on average in all the cycles since 1975. In all other cycles, Year 2 of the recovery was a year of multiple contraction, and unless markets rise by 36% between now and year end, so will this year. We may perceive it to be different but perception does not make for reality."
- In Year 2, markets historically reward earnings, they are doing so again — "The highest return factors in Year 2 have historically been upward revisions to earnings, rising margin forecasts, and low P/E stocks. Over the last 6 and 12 months the second best investment factor has been EPS revisions. Multiples expand out of the market trough as investors anticipate a recovery, then they look for proof of a recovery. They find proof in the year post the lows, i.e. Year 2-now."
- LEI continues to fall but liquidity indicator showing tentative turn around signs"Our LEI fell from -56 to -65.5 over the month, signaling that the growth outlook remains weak and has weakened further. The correlation between LEI and equity markets remains high at 0.6. Now the good news, our excess liquidity indicator, which turned negative in March, has turned up (smaller decline) vs. the prior month. This is signaling that, at least in Asia ex, liquidity for the market is less tight than before."
- August was a poor return month as per the last 30 years — "That clearly was no different, and next comes September which historically is only slightly better. August and September are the only two months of consecutive negative returns in Asia ex over 30 years. The surprise is that on average October is actually quite good."


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