Goldman Sees 14% Returns for Asia Ex-Japan Stocks Next Year

  • MSCI Asia Pacific ex-Japan Index target increased by 9.7%
  • Tighter monetary policy could be headwind in second half

UBS' Haefele on Stocks in 2018, Asian Markets, Brexit

Strong corporate earnings and favorable stock valuations will help one of the world’s top-performing regions extend its runaway success in 2018, according to Goldman Sachs Group Inc.

The U.S. bank says stocks in Asia excluding Japan will outperform next year after staging a 33 percent rally in 2017 -- twice the gain achieved by the S&P 500 Index. Goldman raised its 12-month target for the MSCI Asia Pacific ex-Japan Index by 9.7 percent to 620 in a report released Wednesday, and favors China, India and South Korea stocks.

Both corporate profits and the total return on the index will surge 14 percent next year, with earnings growth especially strong in the technology, materials and insurance sectors, analysts led by Timothy Moe wrote in the report. Markets can advance further if earnings growth is good and starting valuations are moderate, they added.

The forward price-earnings ratio looks relatively inexpensive. Even after this year’s surge, the Asian index trades at 14 times estimated earnings -- 23 percent less than the record-breaking S&P 500 Index, according to data compiled by Bloomberg.

“The macro environment is likely to stay favorable heading into 2018,’’ the analysts said, though they warned that tighter monetary policy could create a headwind for Asia in the second half.

The surge in the regional index has been helped by a global recovery that supported export-oriented economies and a worldwide equities boom -- bringing the gauge to a 10-year high. About 67 percent of companies on the index reported earnings growth this quarter, the best in seven years for the same period, according to data compiled by Bloomberg.

As for China, Goldman suggests staying bullish on financials, and says environmental stocks will continue to be a popular theme. Its end-2018 targets for MSCI China, the Hang Seng and the CSI 300 imply an 8.7 percent, 7.3 percent and 11 percent upside respectively from Tuesday’s close.

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