Most of the Stocks in Asia Are a Buy, If You Believe Analysts
When it comes to Asian stocks, there’s hardly a loser in the bunch, at least judging by the number of buy ratings.
(Bloomberg) -- When it comes to Asian stocks, there’s hardly a loser in the bunch, at least judging by the number of buy recommendations.
Among more than 18,000 analyst ratings for MSCI Asia Pacific Index firms, 60 percent are a buy, the most since October 2011, according to data compiled by Bloomberg. The highest portion is for energy shares, at 65 percent.
In its simplest interpretation, all the optimism is a positive, reflecting improving expectations for economic and earnings growth. But too much of a good thing can also be a drag should analysts reconsider their goodwill. Equities proved vulnerable when buys were this high in 2011.
“It can be a warning sign that things are getting a bit too upbeat, a bit too optimistic and you might see a downturn,” said Shane Oliver, head of investment strategy with AMP Capital Investors in Sydney. “If things do go down, with brokers part of the investment community biased towards buying there’s a degree of vulnerability.”
Earnings growth remains perhaps the best reason to stick with Asian equities after a 13-month rally was curtailed in February, with profits in the MSCI gauge forecast to rise 10 percent in 2018. At the same time, if you squint you can see the beginnings of rust on that foundation as analysts put a brake on the pace of profit upgrades.
Specifically, they’ve raised forecasts for earnings growth in the next year by and average of 8 percentage points over the last six months. That’s down from a rate of increase that reached 11 percent in the six months before that. The data is based on 12-month forward forecasts of per-share profit among MSCI Asia Pacific companies and excludes major outliers.
It hasn’t been enough to affect stock recommendations but one day it may, if there is a more pronounced slowdown, said Mixo Das, Asia portfolio strategist with JPMorgan.
“Ratings haven’t changed that much because ratings are slower-moving,” Das said in a phone interview. “Unless there is a significant change in the earnings outlook or multiple assumptions, analysts will be reluctant to change their ratings because that’s a much bigger call to make.” JPMorgan is still constructive on Asia equities and expects the pace of earnings revisions to resume over the course of 2018.
--With assistance from Abhishek Vishnoi Tim Smith and Christy Chong (Bloomberg Global Data).
To contact the reporters on this story: Eric Lam in Hong Kong at elam87@bloomberg.net, Moxy Ying in Hong Kong at yying13@bloomberg.net.
To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Chris Nagi
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