Asian stocks could offer returns of 36 percent in dollar terms next year, helped by growth in emerging markets, Goldman Sachs Group Inc said.
The MSCI Asia-Pacific excluding-Japan Index could increase to 540 by December next year, while the MSCI Asia excluding-Japan Index may rise to 650, Goldman Sachs analysts led by Timothy Moe wrote in a report dated yesterday.
They also upgraded South Korea stocks, which joined China and Taiwan among the markets rated “overweight” at the brokerage.
The MSCI Asia-Pacific excluding Japan Index rose 2.4 percent to 401.54 as of 10:22am in Singapore, rebounding from last week’s 3.8 percent slump.
It has rallied 61 percent this year, poised for its best annual gain since 1993. The MSCI Asia excluding Japan Index rose 2 percent to 464.04.
“Our analysis makes us surprisingly positive on Asian markets for 2010,” the analysts wrote. “The growth in emerging-market Asia should attract inflows from low-growth developed markets, providing an uplift to valuations.”
Moe, the brokerage’s regional strategist, and his colleagues said on Oct. 30 Asian stocks may post a “sluggish” performance into next year amid slowing economic indicators and after a rally from their March lows lifted valuations.
“We started the fourth quarter concerned about a potential decline in global macro momentum and the impact of low capacity utilization in developed economies on Asian corporate margins,” the strategists wrote yesterday.
“But having dug deeper into earnings and liquidity, we now feel this factor will affect the intra-year path more than the overall direction for the year,” Moe said.
GDP in Asia excluding Japan may increase 8.7 percent next year, led by China’s expansion, Goldman Sachs said. That’s more than the 4.2 percent growth forecast for the global economy, they said.
Earnings for companies on the MSCI Asia-Pacific excluding Japan Index could grow 34 percent next year, more than the 23 percent increase estimated by other analysts, the report said. The brokerage had initially forecast a 22 percent increase in profits.
The Goldman Sachs analysts also raised their rating on South Korea, saying the market may post returns of 40 percent next year amid “strong” earnings growth of 37 percent next year and 17 percent the following year as well as a 20 percent increase in valuations.
The upgrade contrasts with a downgrade on the market by BNP Paribas, which also said yesterday the country could be most at risk of capital controls next year amid a surge in foreign inflows to the region.
BNP analysts led by Clive McDonnell yesterday lowered their rating on the market to “neutral” from “overweight.”
Still, Asian stocks may rise 20 percent in the next 12 months, with the MSCI Asia excluding Japan Index poised to rise to 570, according to the BNP report.
Citigroup Inc said in a separate report dated Friday that the benchmark index could rise to between 520 and 540.
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