Merrill Lynch said on Wednesday it was upbeat on Asian equities this year because strong domestic demand would boost corporate earnings growth, with India, Thailand, Australia, China, and South Korea offering the best value.
Stephen Corry, Merrill's vice president of Asia-Pacific equity strategy, said he expected an average return from Asian markets of about 5 per cent this year, against seven per cent in 2002, but several countries would offer double-digit returns.
He advised investors to look at countries experiencing strong domestic demand, because of uncertainty over US consumption, but also said firms exporting to China's burgeoning economy would see strong growth.
India was top of Corry's list, with an expected return on equity of 23.3 per cent this year, while Thailand was second with a projected 17 per cent.
"We have just raised India to overweight. It offers good earnings growth, high return on equities and low valuations," Corry, who is based in Hong Kong, said at a seminar in Bangkok.
For Thailand, Corry said strong domestic demand and low interest rates would spur solid economic growth and boost corporate earnings by around 30 per cent this year.
Merrill expects the Thai economy to grow 3.8 per cent in 2003. The Thai government projects around 4.9 per cent, the same growth as it says Thailand achieved last year.
"Thailand has solid fundamentals, positive earnings revisions, stable politics and cheap valuations," Corry
Chinese remedy
Corry said investors in Asia should consider stocks in raw materials, energy, utilities, information technology and semiconductors, because strong demand in China would boost sales.
"China is a net importer of materials such as steel...and it is good in terms of generating top-line growth for Asian companies," Corry said. "China is a hub of influence on Asia."
"Within the IT non-semiconductor we have a preference for mobile handset plays."
Corry said he underweighted financial stocks due to their volatility and vulnerability to geopolitical shocks.
Corry said he maintained an "underweight" for markets in Singapore, Malaysia and Indonesia because of their negative earnings revisions.
"Singapore's economy so depends on the global economy, while Indonesia has no foreign investment growth," he said.
Merrill said it kept Hong Kong and Taiwan at 'marketweight.'
Merrill Lynch is among the world's largest fund managers, with more than $499 billion under management.
