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March 2017
Asia Market Outlook:
Expecting the Unexpected
Affin Hwang Asset Management Berhad (429786-T)
FOR PROFESSIONAL INTERMEDIARIES ONLY. NOT FOR PUBLIC DISSEMINATION
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Table of contents
► Where are we today?
► Market Outlook 2017: Asia
► Why Affin Hwang Absolute Return Fund II?
► How the Fund derives returns for you?
► Affin Hwang Investment Strategy
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Where are we today?
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2016 in Review: Bouts of Confusion and Shock
World Equities
+8.5%
US Treasury
+1.0%
US Dollar
+3.6%
Jan – Feb
China equity rout , oil slumped to
$26, BoJ negative interest rate,
Bank CoCo fear
Jun
Brexit blow Aug - Sep
BoE reintroduced QE,
negative yielding bonds
swelled to $13.4 trillion, DoJ
claim against Deutsche Bank
Nov - Dec
Trump’s victory, bond yield spikes,
OPEC output cut, Dow closed above
19,000 points, Fed raised 25 bps rate
Source: Bloomberg, as at 31 Dec 2016, in USD terms and on total return basis.
Mar - Apr
EM / Asia relief rally,
rate hike prospect
postponed
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Asia Equities
+5.4%
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2017 investment landscape is broadly shaped by:
Undercurrent #1: From Globalisation to De-globalisation
Undercurrent #2: From Monetary Easing to Fiscal Boost
Undercurrent #3: From Deflation to Reflation
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After Brexit and US election, more political events to come:
The rush for the exit in Eurozone?
Dec 2016
Italian constitutional
referendum
1Q 2017
UK to trigger Article 50
Apr – May 2017
French presidential
elections
Sep 2017
German parliamentary
elections
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Mar 2017
Netherlands general
elections
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Years of ultra-loose monetary policies are losing its effectiveness
Central banks recognise the limitations of monetary easing
Source: Bloomberg, Fed, ECB, BoJ, as at Dec 2016
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US Federal Reserve European Central
Bank
Bank of Japan
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Trumponomics
Details are scarce
Trade
Tax
Fiscal Stimulus
Source: Bloomberg, as at Dec 2016
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Market Outlook 2017: Asia Equity
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-1.1
1.6
1.7
1.8
2.1
2.2
2.3
2.5
2.7
2.8
3.4
4.1
4.9
4.9
5.0
5.2
5.7
5.8
5.9
6.6
7.2
8.5
9.1
9.2
9.3
9.4
CRUDE OIL
Indonesia - Jakarta Composite Index
Japan - Nikkei 225 Index
Blomberg Asia REIT Index
Thailand - Stock Exchange of Thailand
UK - FTSE 100 Index
Japan - TOPIX
Australia - ASX200 Index
MSCI Europe
Korea - Stock Exchange KOSPI Index
Shanghai Shenzhen CSI 300 Index
FTSE Bursa Malaysia KLCI Index
Philippines - Composite Index
US - S&P 500
FTSE ASEAN40
MSCI AC World Index
India - S&P BSE India Sensex
Gold
Taiwan - Stock Exchange Weighted Index
MSCI Asia ex Japan Infrastructure
Singapore - Straits Times Index
MSCI AC Asia ex Japan Small Cap
Hong Kong - Hang Seng Index
MSCI Emerging Markets
MSCI Asia ex Japan
FTSE Bursa Malaysia Small Cap Index
YTD Indices Performance (Local Currency)
Source: Bloomberg, 15 February 2017
Asia / EM is the
top performer
so far this year
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What is in store for Asian investors in 2017?
► Upside surprise on macro data
► Rebound in pricing power positive to corporate earnings
► Valuation and sentiment suggest equity is attractive
► Fundamental improvement to drive the valuation multiple
expansion
► Impact from US trade protectionism
► USD factors vs Asia performance
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Asia macro data has been surprising on the upside
-80
-60
-40
-20
0
20
40
60
80
Jan-2014 Jun-2014 Nov-2014 Apr-2015 Sep-2015 Feb-2016 Jul-2016 Dec-2016
Citi Economic Surprise Index - Asia Pacific
US Election
The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases
have been stronger than expected and a negative reading means that data releases have been worse than expected.
Source: Bloomberg, 17 Feb 2017
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China’s measures to cut overcapacity yielded positive results so far
The return of pricing power for the industrials, boosting the earnings growth
Regain pricing power
It allows the factories to consider to
raise price as industrial restocking.
Positive to profit margin recovery
Source: CEIC, J.P. Morgan estimates, Sep 2016
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Source: WIND, Deutsche Bank Strategy Research, 15 Dec 2016
Resume the trend of earnings
growth
Corporate earnings have grown 16%
in 9M16, underpinned by industrial
policy and commodity price rebound.
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Broad based earnings revision continues to spread over, reversing the
the earnings downtrend since 2014.
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Source: Deutsche Bank, as at 9 February 2017
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Infrastructure story is taking shape in Asia:
Asian governments ramp up infrastructure spending
Philippines
High hopes for the new
administration’s pledge on
infrastructure spending
Indonesia
Subsidy savings and tax
amnesty revenues to
support infrastructure
funding
Malaysia
High contract flow and
construction activity to sustain
growth momentum
Source: Bloomberg, as at 20 January 2017
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Asia equity valuation is way below the long term historical averages
Investors may need to take risk to monetise the cheapness of Asia equities
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The aggregate valuation measure consists of historical PE, prospective PE, Price/Book, Dividend Yield and an Earnings yield/bond yield
indicator. Source: CEIC, UBS, 17 February 2017;
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Bearish sentiment towards Asia eased, reverting to long term neutral
levels
Historically, panic levels imply potential upside returns over 12-month horizon
Source: BofA Merrill Lynch Global Research, Factset, 20 February 2017
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Trump’s trade protectionism is a risk to Asia supply chain
US – China trade dispute could send ripple effects to Asia economy
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Source: JP Morgan, December 2016
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USD strength inversely correlated to EM / Asian equity performance
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Source: Citi Research, 19 December 2016
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What is our take for 2017?
► Learn to adapt the changing global political
landscape
► Taking cues from UST bond yields and USD
strength
► Expect market cycles to be shorter and sharper
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Affin Hwang AM Investment Strategy
Tactical positions
Intend to uncover
short term tactical
opportunities
Secular Growth
This allocation will be invested
into stocks with long term
secular growth prospects
Dividend Yield
This position seeks to invest into
dividend yielding stocks, potentially
providing steady income for
investors.
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Three Key Themes
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Reflation Domestic
Asia Oversold α
Banks
Insurers
Industrials
Commodity
Consumer
Tourism
Infrastructure
Dividend yielders
REITs
Exporters
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