Tech and cyclical issues win favour
STEPHEN SEAWRIGHT
Investors in Asia should be overweight on technology and cyclical stocks across the region rather than selecting specific countries, according to a Salomon Smith Barney strategist.
Overseas investors are still rerating the Asian technology, media and telecommunications (TMT) sectors which should push their prices higher over the next three to six months.
Within the sector, South Korea and Taiwan are seen as the most profitable markets.
"Taiwan and Korea should give a bigger bang for every TMT buck," Salomon's head of Asia-Pacific equity strategy, Han Ong, said.
Further rises in these stocks should boost the region's market indices, which are increasingly dominated by technology and related sectors.
"TMT counters could soon account for more than half of the market caps of Asia indices, well above the global average," Mr Ong said.
The growth in technology and telecommunications counters is also expected to be driven by the number of Internet users in Asia surging 34 per cent a year to 66 million by 2003.
Cyclical stocks will rally from continued growth in domestic demand, with the recovery becoming less dependent on exports.
Salomon forecast Asia's economic growth would rise to 6.3 per cent this year from 6 per cent last year.
The investment house recommended underweighting Hong Kong because there were few stocks that were expected to rise further on the back of cyclical recovery.
Mr Ong recommended "modestly overweight" in Hong Kong technology-related counters, however.
"Hong Kong offers some international names in telecoms but little in the way of cyclicals," Mr Ong said.
"The banks are neither growth nor value stocks at their current ratings [and] it is also the wrong time in the market cycle to be invested in real estate or the utilities."
Investors should look to Southeast Asian economies, particularly Singapore, Malaysia and Thailand, for exposure to cyclical stocks.
Changes to the construction of the Morgan Stanley Capital International (MSCI) indices are also expected to boost Asia's markets.
"MSCI will raise the market cap of the Asian ex-Japan Index by US$242 billion, representing a 35 per cent increase," Mr Ong said.
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