SINGAPORE: Asian stocks are expected to rise by 20-30% once a clear resolution has emerged over the crisis in Iraq, and Korean and Taiwanese companies are expected to outperform, ING Financial Markets said.
“Markets hate uncertainty. Once we have clarity over how the major powers plan to deal with the Iraq crisis, that uncertainty will be lifted and markets will rally,” said ING chief strategist Markus Rosgen.
“Among specific markets, Korea and Taiwan are expected to be the biggest outperformers, while Hong Kong and Thailand will perform in line with their benchmarks, with China, Indonesia, Malaysia and Singapore underperforming.”
Rosgen said utilities are expected to do poorly in Hong Kong while property shares should “do very well”.
ING said Asian stocks are very cheap currently and predicts the stock markets in the region will be trading at one time their book value – a level that has only been reached three times since 1975.
“Furthermore, compared to the first Gulf War in 1991, Asian companies have far less debt on their balance sheets, making them more susceptible to an upward rally and valuations are the same today as back in 1991,” it said.
Once the relief rally subsides, Asian stocks could fall back about 10% as economic data lags the market, ING said, but added that this will only be temporary as the weak US dollar should lead to greater export demand from the region and help fuel another market rise.
“Stocks always rally first, but confirmation that fundamental economic conditions and company earnings support the rally, always takes 6 to 9 months to feed through,” said Rosgen.
Rosgen said Korea's Samsung Electronics, Hyundai Motor and Taiwan Semiconductor Manufacturing and United Microelectronics should outperform during the relief rally, while China Mobile and Hutchison Whampoa in Hong Kong will provide investors with upside potential. - AFX
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