Singapore-based Sakthi Siva and her Credit Suisse teammate slip back to second place after a year in first. These strategists not only make good calls, one fan insists, but “raise important issues and challenge our thinking. They do a better job of that than just about anyone else.” In a March report the duo encouraged investors to consider the question, “Will the crowded trades work in 2014?” The analysts’ believe that the answer is a selective yes. For Asia ex-Japan they recommend crowded long positions in such new economy sectors as Chinese Internet, Macau gaming and regional health care, while advocating crowded shorts in old economy segments, including banks, energy, industrials and materials. A telling statistic, they advise, is that the price-to-book gap between these two groups has narrowed from a high of 6.32 times in March to 5.37 in April. In addition, the premium that new economy stocks enjoyed over their older peers, as measured by aggregate price-to-book ratio adjusted by return on equity, fell from a high of 298 percent in February to 236 percent in late March. A comparison of the newer sectors’ performance with the stock bubbles experienced in 1988–’89 in Japan, in 2000 in U.S. technology shares and in 2007 in the Shanghai market reinforces the researchers’ view that crowded long positions still have life. Historically, they note, crowding combined with overvaluation is insufficient justification for a correction. Consensus revisions to earnings per share are key, they conclude. |
The 2014 All-Asia Research Team: Equity Strategy, No. 2: Sakthi Siva & team