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Global Equities (excluding U.S.)

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by Elvin Thean
J.P. Morgan Investment Analytics & Consulting
elvin.x.thean@jpmorgan.com

AS OF JANUARY 2010

European Indices (UK, France, Germany, Switzerland)
All quotes in Euros

IAC
Source: J.P. Morgan Investment Analytics & Consulting, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes

For the period from November 2009 to January 2010, equity markets were volatile. After their strong rally of the end of the year, equities were hit by renewed concerns about the sovereign debt situation of several European countries as well as negative newsflow on banks regulation. Stocks fell ~8% from their recent peak, led by cyclical sectors and Financials, while Staples and Pharma were amongst the best performers. The correction occurred despite the Q4 2009 earnings season delivered strong positive surprises on both bottom and top-line with most companies beating analyst estimates, leading to a new wave of earnings upgrades. European equities are now trading cheap on 11.3x forward EPS, a 15% discount to their long term average. While the macro dataflow remains soft in Europe, the momentum is still accelerating in the U.S., leading to an increased divergence in growth forecast between the two regions. The economic upturn is tracking, the turn in labour market points to a broadening of the recovery towards consumer and the earnings cycle is becoming a tailwind.

Japan (Nikkei 225)

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Source: J.P. Morgan Investment Analytics & Consulting, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes

Japan’s total net portfolio flows recorded outflow for the second consecutive week in January 2010 with the amount having jumped to -JPY1.3trn, mainly driven by Japanese investors’ large scaled purchase in foreign bonds, further increased to JPY906.4bn. Notably, foreign investors net sold Japanese equities, albeit only modestly, selling -JPY32.9bn after purchasing for nine consecutive weeks. In addition, Japanese investors turned net buyers of foreign equities to the tune of JPY125.8bn, the largest amount of purchase since July 2009.

Korean (KOSPI)

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Source: J.P. Morgan Investment Analytics & Consulting, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes

South Korean equity market began rebounding with the stabilization of money market and KRW, along with early recovery signs from economic sentiment indices and leading indicators. It was largely driven by strong buying flows by foreign and domestic retail investors and economic indicators that surprised on the upside. For sector performance, large exporters led the market rally, including IT and auto, helped by a sharp depreciation of KRW up to the 1500 level, while financial stocks pushed the market further up in 2H 2009, as the financial market was returning to a normal track.

Australia, Hong Kong, Singapore

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Source: J.P. Morgan Investment Analytics & Consulting, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes

Hong Kong equity market fell last week of January 2010 amid concerns over Europe’s debt crisis. Hang Seng Index fell 7.85% week-over-week and dropped below 20,000 for the first time since September 2009. Average daily turnover was HK$67bn. Export continued to rally despite the consolidation. Hong Kong’s retail sales registered further solid gain in December 2009, rose 11.3% year-over-year in volume terms and 16%yoy in value terms. Sales of consumer durable goods were up 17%yoy, whereas sales of clothing and footwear rose 14%yoy.

China's recent macro data shows that the overall economy and industrial activity continued to expand at an above-trend pace entering 2010, on the back of solid investment and retail sales growth, with a notable upturn in the export sector. On the monetary policy front, the government has kicked off the monetary tightening cycle much earlier than expected, with the first 50 bp RRR hike announced on January 15th 2010 and another 50 bp in February 2010, to prevent potential overheating in the economy. Reacting to the tightening concerns, MSCI China has fallen by 7% YTD.