Citigroup Asia ex Japan - The Migration to North Asia Is Far from Over

 The consensus continues to be long South Asia and consumers — Investors have begun to make the shift – reluctantly - out of South Asian markets and consumer plays towards North Asia and cyclicals. There is a long way to go until this trade is done. North Asia offers more attractive valuations vs South Asia, outperforming earnings revisions (a factor which markets reward) and stronger benefits from a stronger growth environment.

 Sentiment has turned more cautious; Plenty of Year 3 corrections — Discussions about market upside are decreasing while those regarding downside risk are increasing. To get back to average valuations, Asia ex would need to fall by 15%. The biggest downside is found in Indonesia (-29%) and then materials and consumers (-25%). The average year-3 correction starts at 2.3x P/BV (Asia ex 2.1x) and end at 1.7x P/BV.

 Remain overweight North Asia (HK, KR and TW) and cyclicals— Remain overweight North Asia (HK, Korea and Taiwan) and cyclicals vs underweight South Asia and consumers and materials.