HSBC, a world leader in banking and financial services, has recommended that investors overweight on Asian stocks in the next quarter, with Thailand the top pick.
The HSBC said in a report yesterday that Asia's growth is driven by resilient, good outlook. Thailand is highly recommended, followed by Indonesia, China and Malaysia.
The Stock Exchange of Thailand Index has shot up 24.46% this year; one of the highest return among global markets. Local brokers say the SET index may reach 1,300 points sooner than expected, thanks to the US Federal Reserve's third round of quantitative easing announced last week.
A clearer picture of rescue plans for the euro zone, also announced last week, will be another key factor driving Asian stocks this week.
Herald van der Linde, HSBC's head of equity strategy for Asia-Pacific, said that Asian markets have shot up, supported by low valuations and hopes for central banks' stimulus packages, especially China's.
The region is not immune to weaknesses in Europe and the US. The purchasing managers indices (PMI) for China, Taiwan and Korea have weakened on sluggish export orders.
However, China's economy will recover gradually in second half this year.
The MSCI Asia ex-Japan, a widely used index compiled by Morgan Stanley Capital International to measure equity market performances, suggested an overweight for Thailand (3%), Indonesia (4%), Malaysia (5%). It gave the most weighting to China at 23%, followed by South Korea (21%), and Taiwan (15%).
Mr Linde noted that Thailand is shaping up to be a structurally strong growth story. "Valuation is reasonable. There is an opportunity of a near-term growth surprise, dividend yield is attractive and political risk is easing."
Thailand's economy is forecast to grow by 4.2% this year, and corporate earnings growth is expected at 17.2%, compared to the region's 11.2%.
"We expect foreign funds will buy more Thai equities in the next quarter as they current weighting is below benchmarks, and this is the reason of Thailand equity's attractiveness," he stated.
Malaysia will also benefit from a strong economy and low inflation. It has defensive and stable characteristics, high yield and is likely to benefit from fund flows.
Indonesia would have a growth surprise with earnings per share of 8.9% for 2012. The country's economy will be driven by domestic demand as Asean moves forward, he said.
HSBC is underweight in Taiwan and India, as both countries has been hard hit by the EU and US slowdown.
India also lacks clarity in its stimulus policy.
The SET Index yesterday closed at 1,278.54 points, up 0.19% with trading turnover worth 42.21 billion baht. Foreigners were net buyers of 551.69 million baht.
Thawatchai Aswapornchai, research manager at Globlex Securities, said the SET Index today will continue sideways, as the market remains optimistic about QE3. A factor to watch is the Bank of Japan's meeting on Sept 18-19, with another major policy to revive economy expected.
The resistance level for the SET is 1,296 points and support is at 1,260.