Credit Suisse analysts raised 12-month target for MSCI Asia ex-Japan to 500, up 18% from their previous target of 425, saying Asia is in spot of earnings upgrades albeit without imminent policy tightening. The 500 target implies a prospective P/E of 14x and assumes an estimated 30% earnings per share growth in 2010, in its an equity strategy report.
Reportedly, Credit Suisse Asia Equity Strategist Sakthi Siva, points to four factors that drive the upward target revision: Asian six-factor still 16% undervalued, earnings growth, signs of domestic demand recovery within Asia and lower risk of a US double-dip.
The bank has said that although Asian markets have seen a run-up from their October 2008 lows, Asia is still 16% undervalued based on a six-factor valuation model. The six-factor valuation model is based on three absolute components – historical P/E, price-to-cash flow and dividend yield – as well as three relative measures which are P/E adjusted by inflation, price-to-cash flow adjusted by inflation and earnings yield adjusted by bond yields.
Credit Suisse expects earnings per share upgrade momentum to continue following three consecutive months of broad-based upgrades to consensus EPS. In economies such as China, Korea and Indonesia, there are many signs of domestic demand recovery in Asia, including Chinese bank lending and increased volumes of property transactions in China, Hong Kong and Singapore.
