Asian equity markets, which have had a stellar rally this year with gains of more than 10 percent in much of the region, are now starting to lose their shine as the outlook for regional exports deteriorates, analysts told CNBC.
“It’s tough generally. Our companies are telling us that they are not seeing any pickup in business and activity, said Hugh Young, managing director of Aberdeen Asset Management in Singapore. “We will see marginal earnings growth this year at best…Single digits, I think.”
Aberdeen owns shares of companies in a range of industries including China Mobile , CNOOC , Siam Cement, and SembCorp Marine and United Plantations.
Economies across the region are struggling with slowing exports as orders from their biggest markets decline. Much of Europe is in recession, while economic growth in the U.S. remains weak and China’s economy has slowed more than expected in recent months.
Singapore’s non-oil in August fell by a bigger-than-expected 10.6 percent from a year earlier, hurt by a 28.7 percent plunge in shipments to the European Union, Singapore’s largest market.
and Thailand dropped by more than 6 percent in August from a year earlier and this is a sign of worse to come for the region, analysts said.
“I’m not convinced exports will pick up in the fourth quarter,” Young said. “There’s no demand.”
Equity markets in South Korean and Taiwan have rallied almost 10 percent so far this year, while Hong Kong’s benchmark stock index has gained about 13 percent and Singapore shares have jumped 16 percent.
That compares with gains of about 15 percent in the S&P 500 index and a rise of around 8 percent in European shares. Chinese markets have bucked the regional trend as weak economic growth in the world’s second largest economy dents investor sentiment.
Vasu Menon, vice president, wealth management with OCBC bank in Singapore, is also cautious about Asian stocks for the rest of the year, agreeing that corporate earnings will likely weaken.
“At this juncture, I can’t say with conviction that I’m bullish about Asian stocks,” he said. “I think corporate earnings are not going to be amazing this year. There’s going to be fears of slower growth and markets are poised for some kind of pullback.”
Southeast Asia Remains Bright Spot
While data show that exports are indeed slowing in Asia, it is not all bad news, economists say.
The domestic consumption story in Southeast Asia should be able to provide some support to GDP growth, they added.
This means that stocks in the Southeast Asian region could still do well in the fourth quarter, according to Tim Condon, head of research for Asia with ING Financial Markets. In particular, he likes stocks in Indonesia, Philippines and Thailand, which have gained 11 percent, 21.8 percent and 26.4 percent respectively this year.
“I think Southeast Asia will have the best prospects,” he said. “There is nothing there to be particularly alarmed about. They have had a good run and they will continue to have a good run,” he said.
OCBC’s Menon also favors Thailand and Indonesia among Southeast Asian nations.
“Thailand is an interesting story, and one that we are a bit more excited about,” he said. “Indonesia, we are quite upbeat because its economy appears to be holding up quite well.”
Even if there is a correction of 5 to 10 percent in Southeast Asian markets in the short term, investors should see this as a buying opportunity, he added.
By CNCBC's Jean Chua.