Investors should buy more shares in Taiwan and Thailand and reduce holdings in South Korea and Hong Kong, HSBC Securities Asia Ltd said.
Investors should "rotate out of the priciest markets into those that have so far missed out on the fun, such as Thailand and Taiwan," said Garry Evans, Asian equities strategist at HSBC in Hong Kong, in his latest research note to clients.
Evans raised his rating on Taiwanese equities to "overweight" from "neutral'' and to "overweight" from "underweight" for Thai stocks.
He lowered his call on South Korea to "neutral" from "overweight" and on Hong Kong to "underweight" from "neutral."
Taiwan's shares closed 0.24 percent lower yesterday as investors continued to lock in profits for the second consecutive day over Wall Street's decline overnight, dealers said.
The benchmark TAIEX closed down 21.53 points at 8,844.22 on turnover of NT$137.42 billion (US$4.16 billion).
First Taisec Securities (一銀證券) manager Stanley Hsu said that Wall Street's overnight performance set the tone for local trade, with expectations of pressure around 9,000 points on the weighted index keeping investors at the sidelines.
improving relations
Taiwanese stocks stand to benefit from improving relations with China after a new government is elected, Evans wrote in his report.
Thailand's SET Index, valued at 10.5 times analyst estimates for this year's earnings, is the cheapest stock benchmark in Asia. South Korea's Kospi and Hong Kong's Hang Seng Index are both at about 16 times. Taiwan's TAIEX has a price to earnings ratio of 18.8 times, while its 12 percent gain this year has lagged behind the Kospi's 21 percent.
Thailand's SET has risen 4.5 percent this month, the biggest gain among Southeast Asia's six largest stock markets.
The Thai stock benchmark is up 13 percent this year, compared with a 7.5 percent advance in the Morgan Stanley Capital International Asia Pacific Index.
As for South Korea's stocks, the Kospi has jumped this year, led by companies such as shipbuilders and steelmakers that sell their products to China.
South Korea's stock market "has done well because of the global cyclical upturn and no longer looks reasonably valued," Evans wrote in his report.
Evans also raised his recommendation on energy shares to "overweight" from "neutral" because of rising oil prices and "cheap" valuations.
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