In emerging Asia ex. China and Malaysia, yesterday’s [September 16] net foreign buying of $0.8 billion turned out to be the single biggest day for net foreign buying since April 2014, notes Credit Suisse Group AG (ADR) (NYSE:CS). Sakthi Siva and King Nang Chik said in their “APAC Equity Strategy” report that they continue to be Overweight the cheapest four markets: MSCI China, Korea, Taiwan and Singapore.
Yesterday’s relief buying in APAC after substantial selling by foreigners
Siva and Chik term it “a pleasant surprise” when net foreign buying of $789 million was logged in Emerging Asia ex. China and Malaysia on Sept. 16, after the net foreign selling over the past four months. The analysts point out that yesterday logged net foreign buying of $470 million in India, followed by $184 million in Korea and $158 million in Taiwan:
However, Siva and Chik note the $789 million of net foreign buying comes after net foreign selling of $21 billion out of Emerging Asia ex. China and Malaysia. As can be deduced from the following table, net foreign selling over the past three to four months out of Emerging Asia ex. China and Japan is $36.3 billion:
The CS analysts point out that on a rolling 12-month basis, net foreign buying has dropped to 0% of market cap on a rolling 12-month basis for Emerging Asia ex. China and Malaysia:
Foreign investor capitulation in a few APAC markets
Highlighting the markets which have witnessed foreign investor capitulation, Siva and Chik point out that Korea (-0.1%), the Philippines (-0.4%), Indonesia (-0.7%), Thailand (-1%) and Malaysia (-1.5%) witnessed foreign investors turning net sellers over the past year:
Similarly, Japan and Taiwan witnessed 0.5% and 0.7% respectively of buying as a percentage of their market cap:
In their exclusive report on “The Cheapest 4” as part of their APAC Equity Strategy, Siva and Chik reiterated their Overweight view on MSCI China, Korea, Singapore and Taiwan. They point out that the cheapest four underperformed 1.3% this quarter while posting 2.9% outperformance YTD.
The following graph sets forth APAC markets sorted on the analysts’ P/B Vs ROE valuation model:
The analysts point out that the cheapest four basket (equally weighted) has underperformed MSCI Asia ex. Japan by 1.3% so far in the quarter:
The following table captures the expensive four, with backtest results from June 30, 2014:
Justifying their rationale for sticking with the cheapest four, Siva and Chik note that historically the success rate of their P/B Vs ROE valuation model is highest after 12 months. The analysts point out that since the model started in 2000, overweighting the cheapest four has outperformed MSCI Asia ex. Japan 75% of the time after six months and 87% of the time after 12 months.
This story originally appeared in ValueWalk.
Photo: Nan Palmero