Seeking Alpha

ericjritter's  Instablog

ericjritter
Send Message
Fund manager based in hong kong covering equity markets all over asia including japan.
View ericjritter's Instablogs on:
  • Take Profit In Thailand & The Philippines After 50% Run And High Valuations.

    Thailand (NYSEARCA:THD) and Philippines (NYSEARCA:EPHE) have gotten off to a great start this year up 12% and 13% and including last year's gains, the 14 month return is 48% and 58%. While its true both are making new records in political stability, low interest rates and funds inflow - the valuations are pricing in much of the good news. We can see below that the Philippines stock market index, PCOMP, tripled off the 2008 lows to 6500 and the price to earnings (NYSE:PE) has hit 19x. This is the highest level since 2003 and I would argue that 19-20x is pricing in a "best case" scenario with little room for disappointment.

    A key attraction of the Philippines and indeed emerging markets is their rapid GDP growth, domestic growth i.e.., low export as a % of GDP (especially lower exposure to Europe and Japan). However, with the major developed economies outlook improving, I suggest the domestic attraction is not so relevant. In addition, the Aquino government has talked up new infrastructure spending but has actually tendered out very little due to a desire to show how "clean" they are.

    Thailand is a tougher call since the economy is more export oriented (75% of GDP vs 30% in the Philippines) and should benefit from an uptick in demand in USA, Ec, Japan and even China. In addition, the valuations are much lower: the PE ratio for the Thai index, the Set, is 14x.

    I am also concerned that the recent Yen weakness will slowdown foreign direct investment by Japanese companies. Monthly wages are now higher in Thailand than China at $345 vs $328 as per JETRO Japan after Thailand hiked the minimum wage 40% last year. I still expect Japanese companies to relocation from China to Southeast Asia but I suspect they will choose Vietnam and Cambodia where wages are much cheaper at $145 and $74.

    I suggest investors consider 2012 laggards such as Brazil (NYSEARCA:EWZ) and Russia (NYSEARCA:ERUS) where the price to earnings (PE) and expectations are much lower at 11 and 5x. The inverse of the PE i.e., 1/5 in Russia cases shows the potential earnings yield which in Russia case is 20% vs Philippines 1/19 is only 5%. Brazil and Russia are also indirect ways to benefit from a rebounding China since China is imports half the world's commodities such as iron ore and crude oil.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Feb 17 3:52 AM | Link | 2 Comments
  • Interest Rate Cuts In India Should Help Market Outperform China In 2013

    India. January 25, 2013.

    By Eric J. Ritter.

    India's stock market has lagged China ytd on expectation that China's economy is recovering faster than India's. China's gdp growth of 7.9% last quarter is clearly higher than India's 5.3% but India has one advantage: it is likely to reduce interest rates from 8% by 100 to 200 bps this year starting at the central bank's meeting at month end. China, however, hasn't cut interest rates since last July and can't without pushing property prices higher.

    Wholesale price inflation has eased from 10% to 7% last month and 4% on a 3 month moving average on lower commodity prices. This is the lowest inflation reading in the last 3 years.

    In addition, with gdp growth falling to a 5.3% in 3q12, the Rbi needs to take action to boost growth. They have hesitated due to inflation worries, large budget deficits and the weak Indian rupee. However, surprise action by the Congress government to hike fuel prices and power tariffs and thus reduce the budget deficit may embolden the central bank to act. Moreover, deregulation to allow foreign direct investment in retail and airlines may help the rupee stabilize.

    Another positive ingredient for India is the recovery in earnings growth with lower commodity prices and short term interest rates. Eps growth last quarter accelerated to 21% growth yoy after nearly zero growth in 4q11 to 1q12. After the Rbi cuts interests further, we expect companies to start to invest again and earnings to further improve.

    Valuations are still cheap at 2.8x p/b compared with the historical range of 2.5 to 4x. I suggest investing in the India etf, Inda, which tracks the Msci index and has a 30% weighting to financials which should benefit from a lower cost of funds and faster loans growth.

    India's return on equity, Roe (as shown below in red on the left hand scale) has averaged 20% the past decade despite falling to 16% last year. I expect a cocktail of lower interest rates, deregulation and the improving global economy boosts profits and Roe's back to 20% plus and p/b to 3.5 for a potential 20% gain this year.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am a fund manager based in Hong Kong and have invested in Asia for last 20 years.

    Jan 25 6:09 PM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.