Goldman Sachs Global Strategy Research has forecast 15%–25% price returns for Asian equity markets, and expects this to be further enhanced by dividend yields of about 4% as well as moderate appreciation of local currencies against the US dollar.
It said in its Pan-Asian Strategy report that it was positive on Asian equity markets although many were up more than 30% year-to-date as the core drivers for further gains remained in place.
“At 13 times forward earnings and with accommodative monetary policy, equity markets can rise further,'' it said, adding investors should use the year-end profit-taking as an opportunity to build positions for the new year.
On Malaysia, the firm expects gross domestic product (GDP) growth to pick up to 6.1% next year as an upswing in corporate investments complemented continuing robust consumption.
“Earnings growth in 2004 is likely to be about 15% and domestic investors are starting to shift back to equities,’’ it said.
It has an overweight position on Malaysia's stock market and has a 12-month base target of 850 for the Composite Index.
“In Asean, we remain overweight on Thailand, Malaysia and Indonesia, market weight in Singapore; underweight in the Philippines.
“In North Asia, we are overweight on Taiwan and market weight in (South) Korea, where we may add to positions as the consumer debt overhang stabilises,’’ the report said.
Goldman Sach said China would remain an important theme next year and there would be increased focus on domestic recovery in many Asian economies.
It said the key things to watch out for next year would be a potential second-half deceleration in US growth, a sharp slowing in China’s economy, poor earnings, higher rates, and politics, protectionism and geopolitical risks.
Still, it expects economies in non-Japan Asia to grow about 8% next year and earnings per share to rise over 20%.
“Our sector allocations are also growth orientated and we are moving towards non-tradable and away from global cyclical.
“We are most overweight on banks. We have pared our transportation weighting, and continue to view utilities, telecoms and energy as funding sectors,’’ the report said.
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