by Tan Shih Ming
SINGAPORE, Oct. 7 (Xinhua) -- While the saga of U.S. government shutdown has stirred unease about the world's largest economy and its impact upon the global financial markets, some analysts argued that investors should take opportunity of this round of price correction to pick up emerging market equities selectively, including Southeast Asian stocks.
The U.S. government began last week the first partial shutdown in 17 years that idled as many as 800,000 federal employees, closed national parks and halted some services after Congress failed to break a partisan deadlock. Republicans and Democrats remain at odds over whether to tie any changes to the 2010 Affordable Care Act to a short-term extension of government funding.
With the U.S. budget impasse dragging on, investors were increasingly worried about whether the country's debt ceiling will be raised this month. The ceiling is far more important than the shutdown since it could lead to an unprecedented default by the U. S., an outcome the market assumes is unthinkable.
However, Credit Suisse Research believed the issue of U.S. debt limit should not deter investors to buy stocks, instead they should use any equity market weakness as a buying opportunity.
Credit Suisse said the chances of lengthy stand-off are low because U.S. polls show that the Republicans are getting a disproportionate amount of the blame for the shutdown, while the Democrats increased their majority in the Senate last year, giving them political legitimacy.
Furthermore, the economic fundamentals are much better than the previous budget stand-off in August 2011 because the U.S. fiscal position is better with the deficit now at 4 percent of gross domestic product (GDP), compared to 10 percent two years ago, and global GDP growth is also accelerating for the first time in 3 years.
JP Morgan Research said the Southeast Asian bourses as at end- September are nearly flat over the last quarter, but none of them are inexpensive relative to their historical valuations. Indonesia trades at a 12-month forward price-earning of 7 percent above the 5-year average, while the Philippines is 23 percent higher, and Malaysia and Thailand are 10 percent to 15 percent higher. Thus, the American research house recommended selective-buying strategy for the region.
While Indonesia was the substantial underperformer in the previous quarter, JP Morgan said its telecommunication counters are starting to see upward revisions for earning per share in financial year 2013, which may perform well amid the U.S. budget impasse. Malaysia's utilities and consumer staple plays are also likely to enjoy similar upward revisions.
Even financial stocks in the region, which have borne the brunt of sell-off over past quarter due to fear of Federal Reserve's tapering of monetary stimulus, have started to see their negative earning revision momentum abating.
Indeed, with the exception of Malaysia's, Southeast Asian financials are generally outperforming their respective country indices over September, led by Thailand's, and are likely to continue their upward trajectory in coming months, said JP Morgan.