Bloomberg News

UBS Cuts Asia Stock Target as Data Signals Economic Slowdown

September 02, 2011

(Updates to add analyst quotes from fifth paragraph.)

Sept. 2 (Bloomberg) -- UBS AG cut its estimate for a gauge of Asian stocks, excluding Japan, as equities remain “broadly out of favor” amid slowing economic growth and a lack of easier monetary policies.

The MSCI Asia excluding Japan Index’s year-end target was cut to 580 from 670, Niall MacLeod and Aakash Rawat, analysts at UBS, wrote in a report dated today. They said they prefer China and India because global growth weakness should help ease inflation concerns, while they kept an “underweight” rating on Taiwan and South Korea.

“We still expect weak data, little relief from central banks in terms of major fresh policy action, but that ultimately the weak patch in data will ease into the fourth quarter,” the analysts wrote.

MSCI’s Asia ex-Japan measure lost 0.9 percent to 510.76 at 11:32 a.m. in Hong Kong, snapping a four-day, 5.5 percent increase. The gauge slumped 10 percent last month, the most since October 2008, amid concern global economic growth is slowing as Europe’s sovereign debt crisis spreads and after Standard & Poor’s cut its rating on U.S. debt.

“Against our base case of no global recession, albeit ongoing weak data, and no global financial crisis, we think equities can still deliver returns of 10 percent or so in the final part of the year,” the UBS analysts wrote.

Chinese export orders fell for the first time in two years in August, and manufacturing in South Korea and Taiwan contracted, underscoring signs of slowing growth that may help dissipate Asian inflation pressures.

Manufacturing Gauges

An index of Chinese manufacturing was at 50.9, near a 29- month low, the China Federation of Logistics and Purchasing reported yesterday. Similar gauges for South Korea and Taiwan were at 49.7 and 45.2, below the expansion-contraction point of 50, data compiled by HSBC Holdings Plc and Markit Economics showed.

The UBS analysts don’t expect the U.S. Federal Reserve meeting that starts on Sept. 20 to spark a rally in Asian shares through a new round of quantitative easing.

“We are not expecting dramatic changes in policy like last year with QE,” the analysts wrote. “While there is some excitement around the two-day Fed meeting later in September, we still doubt that the Fed will do anything that will as dramatically ignite share prices in Asia as happened with QE last year.”

--Editors: Ravil Shirodkar, Darren Boey

To contact the reporter on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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