Looking to Weather Volatility? Try These Asian Plays
Samsung Electronics, COSCO Pacific, Ayala Land and Cathay Pacific are some stocks that will fare well even as market volatility and economic uncertainty continue into the second half of the year, according to a report by HSBC Global Research.
Herald van der Linde, Head of Equity Strategy, Asia Pacific and Garry Evans, Global Head of Equity Strategy of the British bank, looked at criteria such as earnings resilience, structural changes in demand, strength of corporate balance sheet and valuations, and picked the stocks they think would likely to outperform regardless of up or down swings.
South Korea's Samsung Electronics, for example, will benefit from the shift from notebooks to tablets, thanks to Apple's iPad, HSBC said. The company's Note, a smartphone-and-tablet hybrid offering, is expected to increasing its blended average unit selling price over the next few months and keep operating profit margins of its handset unit at 20 percent.
The bank also likes China's COSCO Pacific, one of the top five port investors in the world and the world's third-largest lessor of containers.
"COSCO Pacific remains our preferred play in the Asian port and shipping sector, given its attractive valuation and relatively resilient earnings outlook," van der Linde and Evans said in the report.
We believe that a turnaround of COSCO Pacific's terminal investments (Piraeus, Guangzhou-Nansha) and a strong leasing business will drive its profitability (10 percent profit CAGR in 2011-14) in the forecast period."
HSBC has a 12-month target of 1,760,000 won ($1,519) for Samsung's stock, representing an upside of about 41 percent, and a target of HK$14.40 ($1.85) for COSCO Pacific, or a 42.5 percent increase from the stock's current price.
Other Asian stocks that will be able to weather a global downturn include Ayala Land, Philippines' largest listed real estate firm, which could rise about 11 percent to 24.15 peso (57 US cents), and Cathay Pacific, Hong Kong's flagship airline, which HSBC forecast could gain 41 percent to HK$17.50.
"We expect Ayala Land to progressively develop and/or re-develop land parcels across the country held under its strategic land bank segment," the bank said. "Increased mortgage availability to a wider segment of the population and on better terms is likely to drive demand for residential property in locations where developments were previously not feasible."
Cathay Pacific is HSBC's favorite premium airline in Asia and while the bank expect a somewhat "lackluster outlook", there could be a silver lining in lower oil prices.
"All else same, every 5 percent fall in fuel price could raise our 2012 recurring net profit estimate for Cathay by 10 percent," the analysts say. "We therefore believe that lower fuel price will help to offset a weak revenue environment. We argue that Cathay's strong home base, which we believe is the best positioned gateway into southern China and its greater exposure to North America generate a superior medium-term outlook."
Other than these firms, HSBC also likes India's Titan Industries, Powergrid and HDFC, Thailand's Total Access, Taiwan's AUO, China's Hengan, Hengdeli and China Overseas Land and Investment, Indonesia's Kalbe Farma, South Korea's Hyundai Motor, and Singapore's Sembcorp Marine.
- By CNBC's Jean Chua.