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US Outlook Dampens Asian Investor Sentiment

This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.

A good day to our viewers all over China.

You're watching “Asia Market Daily”, co-produced by CCTV Business Channel and CNBC, first in business worldwide.

I am Saijal Patel.

"Unusually uncertain" - that's how US Federal Reserve Chairman Ben Bernanke described the US economy and that's left most of Asian markets in the doldrums today.

Bernanke said the U.S. Fed will continue with "prudent planning" and "remain prepared to take further policy actions as needed".

On Europe's Friday release of banking stress tests, the Chairman said it remains to be seen, how effective those tests will be.

In order to improve its trade balance, Bernanke said the US has to do its part to reduce deficits and increase national savings and that partners like China also have a part to play.

(SOT) Ben Bernanke, Chairman, US Federal Reserve:

“Surplus countries like China and others need to increase reliance on domestic demand, where appropriate have flexible exchange rates.”

In terms of domestic demand, Stephen Davis from Javelin Wealth Management in Singapore says it's doubtful that US consumers will be able to help its economy power ahead.

(SOT) Stephen Davies, CEO, Javelin Wealth Management:

“But I think it just really reflects economic realities. In the sense that the ability of the consumers in the US and indeed elsewhere to kick start a major recovery is obviously still relatively limited. Aside from a few bright spots, on the industrial side, say things like IT and various other bits and pieces, which are benefiting from higher levels of capital expenditure, you know, it's still very much a muddle through the economy.”

Here's a snapshot of how markets traded today.

Banking shares in Australia weighing down on the overall index – as investors await results from Europe's banks health check and corporate earnings releases.

Japan's Nikkei slipped more than half a percent.

Strength in the yen continuing to put pressure on equities - given the potential downside for exporters.

Blue chip techs also dragging down South Korea's KOSPI index on fears that a slowing economy could mean weaker sales.

Sentiment holding firm in China today with property plays leading the gains.

Analysts are tipping near-term strength for A-shares, with forecasts for a strong earnings season.

As for whether the global economic outlook may weigh on the markets, Sean Darby from Nomura says he sees limited impact.

(SOT) Sean Darby, Head of Regional Strategy, Nomura International:

“Well, just on the point about the A-share market, I think for global investors, it does represent a uncorrelated market that got very little impact from many problems in the euro zone, credit system, on that basis should be a very big overweight for investors, and certainly against local interest rates in real terms, the equity index is very cheap.”

Fraser Howie of CLSA also explains why China's economy will hold up, despite global worries.

(SOT) Fraser Howie, Managing Director, CLSA Singapore:

“China's somewhat different, of course, because it's still very closed off from capital flow perspective from the rest of the world, and so the Chinese government can control what's inside the system but has got much greater control than the European Union or the US. So China has to be what it is, because their biggest consumers are going through problems. But a hard landing in China, as we understand it in developed markets, is not going to happen.”

And it's time for a special look at the travel space, and who's flying high in the airline sector.

Earlier this week - we had strong traffic numbers out from Air China.

It reported an almost 30 percent rise for June. Let's take a look at the load factor for Chinese airlines.

That's how many passengers the airline is carrying versus its available space.

All 3 airlines - Air China, China Eastern and China Southern are averaging 80 percent.

In comparison, global airlines are carrying an 85 percent load. That's versus 70 percent to 75 percent, before the recession.

Within China, China's civil aviation authority says it expects the number of travelers to double over the next 10 years.

Their estimate is for 700 million travelers annually, by the year 2020.

Some analysts say going forward, outbound travel will also gain prominence.

(SOT) Ally Ma, Head of Asia Transport, Citi:

“Yeah I think the Chinese airlines actually is enjoying a great similarity to the Korean airlines, let's say during 1980-1995, the Korean airlines actually saw 20 year 15%, 20% in air travel, especially driven by the outbound passengers, so that was the period of time that Korea was seeing strengthening domestic currency, wage inflation and the inflection point of GDP per capita exceeding $3000, so this kind of set of great demand is actually taking place in China. So we believe outbound passengers will be a very important theme for the PRC airlines, and of course, it's going to be a major driver for the regional air carriers as well.”

Any increase in outbound numbers will certainly be a good thing for China carriers.

As we know, Chinese airlines are going to face increasing competition in the transportation sector, from the railway networks. As part of efforts to boost the regional economy, China has already invested some trillion yuan to extend its rail network

The cheaper fares offered by the train system means some passengers will opt to travel between cities by fast rail instead of air.

Moving on - let's take a look at how some of the airlines are trading. In Hong Kong,

China Eastern's P/E ratio is hovering around 15 times versus China Southern's 22 times.

Here's Citi's take on earnings forecasts and their top stock pick.

(SOT) Ally Ma, Head of Asia Transport, Citi:

“I think all the big three airlines are trading at mid cycle valuation, but we're basically projecting 2010-2011 earnings to be tripling of the previous 2007 peak so valuation-wise, I think this is actually a very high conviction buy on that which we predict 30% upside from the shares, so the top pick is China Eastern.”

Well, that wraps up today's Asia Market Daily from CNBC.

I'm Saijal Patel. Have a great trading week.

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