[T.S.R:17897] Citi-A Recession Will Follow

A stronger US dollar is now causing currency strains — US dollar strong, Asian

equities weak. That has been the refrain over the last 30 years. It looks to be the same

again. As the US dollar rallies, liquidity gets tighter, export prices weaken, ROE and

earnings begin to fall. This has happened four times, and on each occasion markets

have fallen. On a US dollar rally, avoid the commodity, industrial and real estate

sectors. Only defensives outperform. The good news is, the US dollar usually rallies

when Asia ex is above 2x book. We are now at 1.5x book.

 Valuations are saying usual recession to follow — Earning ex 97 have fallen by

38% during recessions. Cyclically adjusted earnings highlight that this appears priced

in, with Asia ex now cheaper than 1990 recession or SARS and at 2001 levels. Vs

2008 we have 13% to go. Same on P/BV. In terms of implied earnings growth rate to

perpetuity, Asia ex is now pricing in 1%, below the rate of inflation over the last 20

years.

 Over 14% of Asia stocks on P/BV now trade below the 2008 lows — A similar

number likewise trade below 2008 lows on a P/E (trailing) basis and 14% on P/CF. That

number is 32% (P/BV) in China, 32% in Japan and 20% each in Australia and Korea. In

terms of sectors, 31% of the utilities are cheaper than in 2008, 24% of the real estate

names, 21% of the other financials and 19% of the industrials.

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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