Asia ex Strategy - Earnings at New Peak; Not so the Market, nor Multiples - Citigroup

 Based on trailing earnings, we've reached a new peak — Earnings are now above their 2007 peak but neither the equity market nor the P/E ratio are. This against a background of record low interest rates. This indicates that investors continue to apply a much higher discount towards equities than they did a few years ago. The wall of worry is alive and well. Markets enjoy climbing it. Worries regarding the 2011 earnings forecasts for Asia ex are also overdone.
 Year 3 is the lowest earnings growth year historically — Not only that but we have hovered at 13-15% earnings growth for 2011 since late last year. Even if the growth rate comes down to 10%, it is hard to see investors selling equities in light of returns available in other asset classes. Note too that what is occurring with earnings revisions today is very consistent with what we’ve seen in prior cycles. At present they are no better or worse.
 The Philippines are showing the best revisions; India the worst — Amongst various sectors, energy ranks top followed by banks. Both sectors also continue to see fund inflows. Utilities and telecoms are showing the worst revision profile in the region. We continue to be focused on North Asia cyclicals, including energy and
banks. The wall of worry is there to be climbed and that’s what the market will continue to do.