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Improving cash flows another reason to stay positive on equities Our positive view on Asia ex-Japan (AxJ) equities has been well rewarded, with stocks up around 18% since their January lows. Nascent signs of a long-awaited earnings recovery in Asia amid less producer price deflationary pressure are welcome developments. Meanwhile, we think the market has not fully factored in solid free cash flow generation in the region which continues to outpace earnings growth thanks to greater discipline in capital expenditure. We favor high quality, cash-rich companies in the region, including technology and telecom leaders which are more likely to step up dividend payouts amid subdued growth opportunities. We also like select financials and sustainable dividend yielding stocks. Upgrade India to overweight, downgrade Singapore to neutral We retain our overweight view on AxJ equities versus Asian credit, and made some changes this month to our intra-Asia country allocation. We upgrade Indian equities to overweight from neutral, while China remains our preferred overweight market. After a strong performance, we downgrade Singapore from overweight to neutral; both Taiwan and Thailand remain underweight. We are neutral on Japan within global equities, though our forecasts for greater stimulus measures are net positives. Asia ex-Japan equities We keep our overweight position in Asia ex-Japan equities versus Asia credit as the recent tactical rally was underpinned by near-term improvements in key macro factors in the region. Policymakers in China have quietly swung back to demand side stimulus. The increase in funding was a clear message of support for the economy, which fuelled a rebound in investment activities and inventory rebuilding. While these measures may be short-lived, we believe they can lift market sentiment further and drive Asian equities higher. China is our preferred market as recent policy support should lead to improved earnings. India has been moved to an overweight as we expect earnings growth to accelerate to high teens in 2016. After Singapore’s strong performance, we reduce the position to neutral as we see less re-rating potential. Taiwan remains an underweight due to concerns about the global tech cycle, and Thailand stays an underweight due to the poor earnings trend.
This message was edited by ferari on 20-May-2016 @ 1:19 AM
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