Winning Tea Leaves
Movies, malls, meals and medicines. If the best-performing stocks from each of Asia's 10 main markets outside Japan are any guide, then 2015 belonged to companies that catered to consumption. Not conspicuous, over-the-top gambling binges in Macau or splurging on expensive cars in Shanghai or Singapore, but small-ticket, largely middle-class spending:
Think of the winners' club as 10 separate tea leaves, each of which carries a little flavor of a single Asian market. When taken together though, the leaves make for an interesting pattern. Start, for instance, with Wanda Cinema Line. After all the nervous gyrations in Chinese equities, the movie-theater operator, which sold shares in January, is set to finish 2015 with an almost 1,100 percent gain. The Shenzhen-listed company, controlled by Asia's richest person, Wang Jianlin, is benefiting from a 41 percent increase in box-office receipts in the first nine months of the year. At an estimated forward price-to-earnings multiple of 115, the stock may be overpriced. Nevertheless, Wanda Cinema's spectacular climb does add to evidence that China's shift away from exports and investment and toward more domestic consumption isn't a pipe dream, at least not entirely.
Besides, the consumption boost in Asia is giving an added fillip to corporate profitability, thanks to falling commodity and energy prices. Take SATS, 2015's best-performing stock in Singapore's Straits Times Index. The airline caterer produced almost 14 million in-flight meals between April and September this year, and ended up saving 15 percent on raw material costs from a year earlier. SATS shares are up 27 percent.
Shopping has been a rewarding theme for shareholders, more than Asian real estate. SM Prime Holdings, the star of the Philippine Stock Exchange Index, saw 11 percent growth in retail and commercial rentals in the first nine months and a 30 percent jump in revenue from subsidiary attractions like rides, bowling and ice staking, according to iTrade. Property sales grew 4 percent. And despite the hype surrounding Asia's emerging e-commerce and digital champions, 2015 very clearly belonged to low-tech, old-economy equities. The one big exception was the Hong Kong-traded shares of Tencent, which returned a handsome 35 percent.
The Asia top-10 list is also almost entirely divorced from finance, which isn't surprising considering the region has seen a massive increase in leverage, and companies and households are now looking to pare debt. None of the publicly traded banks, which feature prominently in benchmark national indexes, made the cut. Indeed, the only financial company was Indonesia's Kresna Graha Investama, which has zoomed 332 percent this year, more than any other stock in the Jakarta Composite Index.
Optimism over U.S. economic growth notably failed to translate into gains for shareholders in Asian electronics companies. It's illustrative perhaps that this year's best-performing stock in Taiwan's Taiex index isn't the contract chip-making behemoth TSMC or iPhone assembler Hon Hai, both whose shares have done nothing much, but tiny Li Cheng Enterprise, a maker of knitted fabrics that has of late chalked up returns on assets in excess of 20 percent. And the best-performing stock on India's benchmark Nifty Index isn't a software vendor like Tata Consultancy or Infosys, but Bharat Petroleum, a state-owned oil refiner that's benefited from slumping crude prices. Leading gains on South Korea's Kospi index isn't Samsung Electronics, but Hanmi Science, the holding company for a drugmaker specializing in the treatment of diabetes.
Maybe global trade will limp back to normalcy in 2016, and shipbuilders, commodity exporters and auto and electronics parts suppliers will outshine companies focused on domestic consumption. In that case, the 3 to 19 percent drop in the region's currencies against the greenback should be making investors cautiously optimistic. Yet, there is more enthusiasm even now for Asia's consumption potential than its production prowess. If 2016 proves to be another year of gains for Asia's growing middle class, then reading the tea leaves 12 months from now might once again show movies and malls at the fore.
To contact the author of this story:
Andy Mukherjee in Singapore at firstname.lastname@example.org
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Katrina Nicholas at email@example.com