News Analysis: Asian stock prices unlikely to rally much further amid lack of fresh catalyst

SINGAPORE (Xinhua) - While the Asian equities have turned around following US Federal Reserve's decision in mid- September to delay tapering of monetary stimulus program, analysts believe the prices are unlikely to rise much further given the generally lackluster corporate earnings in the region so far.

Gains in Asian bourses this year so far are modest, with Singapore stock market benchmark up merely 1.1 percent, Malaysia's up about 7 percent, and Indonesia's and South Korea's up 2 percent each. All bourses are still well below mid-year peak. Philippine bourse, for instance, is about 12 percent below its peak in May.

"We are not convinced that Asian markets will rise much further into the yearend," CIMB Research said, citing "the magnitude of recent price gains and proximity to yearend" as factors that might limit the upside for Asian equities.

"We think that the risks through the yearend are skewed towards disappointments rather than positive surprises," wrote the research house. It argued that the boost to Asian markets from Federal Reserve's tapering delay, the determination among policy makers in the region such as those in India and Indonesia to expedite fiscal reforms, together with recent positive growth and export momentum seen in some countries liked China and Singapore, have already largely played out in the stock prices at current level.

Indeed, the slew of positive factors does not mean the threats to performance of Asian stocks have disappeared. CIMB said the region remains vulnerable to external shocks such as higher interest rates, a stronger US dollar and weaker local currencies should the US central bank scale back its monetary stimulus.

The intense focus on the Federal Reserve may have also oversimplified the underlying drivers of regional performance. The policies to limit the fallout from capital flight such as policy tightening, government spending and handout cuts have already seen economic growth in some parts of the region such as Southeast Asian economies weakening and credit growth slowing.

UBS Equity Research went further to say better corporate earnings growth as well as improvements in regional current account balances are keys to performance of Asian stocks. These factors are in turn depending very much on export growth of economies in the region.

While leading economic indicators, the main ones being purchasing managers indices for each country, rose into expansionary territory in the third quarter, the Swiss research house pointed out that export growth has been disappointing in the region where trade drives much of the economic output and where a lot of optimistic earnings estimates are pinned on a US recovery boosting demand for the region's technological products and cars.

"We need to see much stronger export growth in emerging (Asian) markets," wrote UBS Equity Research. If the macro-fundamental of the region does not undergo big change for the better, the research house will recommend cutting positions in Asian equities.

Likewise, CIMB Research also concluded if Asian stocks continue to rise toward year-end, "we would look to trim positions going into this rally rather than chase it higher."