Asian Stocks May Decline 4.9%, Deutsche Bank Predicts

May 19 (Bloomberg) -- Asian stocks may halt their rally
this year as a recovery in earnings hasn't caught up with gains
in prices, Deutsche Bank AG said.
The MSCI AC Asia excluding Japan Index may end the year at
351.5, a 4.9 percent decline from yesterday's close, according
to a report by Niklas Olausson, an analyst at Deutsche Bank. The
forecast is still 46 percent higher than its earlier target.
The MSCI regional index rose 2.5 percent to 378.71 as of
8:09 p.m. in Singapore, taking its gains this year to 31 percent
and surpassing the 3 advance in the MSCI World Index. Asia
accounts for half the 10 best-performing markets in the world
this year, led by India and China.
"The rally has been largely fuelled by sentiment and
liquidity drivers, in addition to expectations of a lasting
recovery, rather than hard fundamental profit/return delivery,"
the analyst wrote. "We are not out of the woods yet as far as a
further downside risk to earnings is concerned."
Following the gains this year, the MSCI Asian index is now
valued at 18 times reported earnings, compared with its five-
year average of 14 times. The measure's price-to-book multiple
has also climbed to 1.7 times, up from a low of 1 time set in
October.
Deutsche Bank is predicting a 22 percent increase in
earnings-per-share next year, compared with a gain of 31 percent
estimated by other analysts, the report said.

'Improved Outlook'

"Equity markets have already factored in most of the
improved outlook," Olausson wrote. "Markets may overshoot in
the near term, but thereafter we anticipate a period of pullback
and consolidation, before markets climb up again."
Allianz SE, Europe's biggest insurer, said it has bought
Asian equities, bonds and real estate in the past two months and
would only add to its existing holdings at cheaper prices.
"Where we are today, we feel the market is toppish,"
Nikhil Srinivasan, who oversees $20 billion as chief investment
officer for Asia and Middle East at Allianz, said in an
interview in Singapore on May 18. "Valuations are about fair,
it's not cheap. The risk-reward ratio is not that attractive and
investors are getting a bit tired chasing the rally."
The Singapore-based fund manager expects Taiwan and India
to outperform other Asian markets, adding it doesn't plan to be
"too aggressive" on stocks.

India

India was upgraded to "overweight" from "neutral" at
Deutsche Bank, which said the election results was a "positive
surprise" for the market. The brokerage yesterday raised its
target for the benchmark Bombay Stock Exchange Sensitive Index
to 14,500 from an earlier estimate of 11,500.
The measure surged a record 17 percent to 14,284.21,
triggering a suspension in trading after breaching its upper
limit set by regulators. The Sensex added 0.1 percent to
14,302.03 today.
Indonesia and the Philippines were also raised to
"overweight" from "neutral" while South Korea was upgraded
to "neutral" from "underweight," the analyst said. He added
that Thailand was cut to "underweight" from "overweight"
while Hong Kong was lowered to "underweight" from "neutral."
Deutsche Bank is also "turning progressively more
cautious" on China as the gains this year lift valuations,
Olausson wrote in the report. The brokerage retained its
"overweight" rating on the market and said it expects China to
outperform the rest of the region by the end of the year.