20140611-高盛-Bridging_macro_to_micro__GS_top-down_stock_ideas-Refreshed_stock_ideas_for_the_Asia_Pacific_ex_Japan_region_13页_722kb

Summary of GS Top-Down Stock Ideas for Asia Pacific ex Japan (June 2014)

Core Content

This document outlines Goldman Sachs' updated top-down stock ideas for the Asia Pacific ex Japan (MXAPJ) region, based on the Global Leading Indicator (GLI) final reading for May 2014, which indicates the global industrial cycle is in a 'Slowdown' phase with positive but decelerating growth momentum. The firm is selectively adding cyclical beta to its portfolio as it anticipates potential support for regional equities due to the upcoming summer and improved growth dynamics in the US and China, along with specific domestic policy responses in China.

Main Points

• Market Cycle Assessment: The GLI suggests the global economy is approaching the 'Expansion' phase, which historically has been moderately supportive of risky assets.
• Historical Performance: In the 'Slowdown' phase, MXAPJ has registered an average monthly return of 3.0% over the past 25 years, versus -0.6% in other phases.
• Portfolio Strategy: The firm is adding cyclical stocks that benefit from the recovery and reform initiatives in China, as well as improvements in the policy and fundamental backdrop in India.
• Stock Additions and Removals:
  • Additions: CN Medical System, CN Railway, Sinopec, IDK & Mipo.
  • Removals: PingAn, Sinopharm, CMH, Lotte & SK Innovation.
• Portfolio Metrics:
  • 27 stocks in total.
  • Average 2014E P/E: 17.6x.
  • Average 2014E P/B: 2.6x.
  • Average EPS growth: 15%.
  • Average daily turnover: US$49 million.
  • The new constituents will be reflected on Bloomberg on June 12.

Performance Highlights

• GSSZTDSP Performance:
  • As of June 11, the portfolio has gained 40.8% (equal-weighted) since June 11, 2012, outperforming MXAPJ's 24.3% rise.
  • Year-to-date gain: 7.0% vs. MXAPJ's 5.6%.
  • Outperformed MXAPJ for 269 days out of 522 since inception.
  • 60-day volatility: 9.2% vs. 7.4% for MXAPJ.

Key Insights

• Top Performers: ICICI Bank and Power Grid Corp. of India were the top performers in the March 2014 period.
• Laggards: SK Innovation and China Merchants were the underperformers.
• Factor Exposure: The selected stocks have favorable macro exposure and strong micro profiles, particularly in terms of market risks, local growth, and policy/liquidity.
• Weight Distribution:
  • By Markets: Exhibit 10 provides the weight distribution across different markets.
  • By Sectors: Exhibit 11 shows the sectoral allocation.
  • Weight Differentials: Exhibit 12 and 13 compare the portfolio's weights with those of MXAPJ across markets and sectors.

Portfolio Composition

• Stocks in Portfolio:
  • Additions (as of June 12, 2014): CN Medical System, CN Railway, Sinopec, IDK & Mipo.
  • Deletions (as of June 11, 2014): PingAn, Sinopharm, CMH, Lotte & SK Innovation.
• Rating: Most stocks are rated Buy (B) or Neutral (N), with some listed as Coverage Suspended (CS).
• Performance Since Inclusion:
  • CN Medical System: -
  • CN Railway: -
  • Sinopec: -
  • IDK & Mipo: -

Top-Down Framework

• GLI Phases: The GLI momentum and changes define four phases of the business cycle: Expansion, Slowdown, Contraction, and Recovery.
• Stock Selection Process: The firm uses a combination of macroeconomic indicators and fundamental analysis to select stocks that align with the current phase of the cycle.
• Trading Algorithm: The table outlines the factor loadings for each GLI phase, indicating the preferred exposure to market risks, local growth, policy/liquidity, inflation, oil, and global growth.

Disclosures

• The firm may have conflicts of interest due to its business relationships with companies covered in the research.
• This report is intended for institutional clients only and should be considered as one factor in investment decisions.
• For more details on the stock-picking framework and methodology, refer to the related research document.

Summary of Key Metrics

Metric	Value
Portfolio Name	GSSZTDSP
Inception Date	June 11, 2012
Equal-Weighted Return (2012-2014)	40.8%
MXAPJ Return (2012-2014)	24.3%
Year-to-Date Return (2014)	7.0%
MXAPJ Year-to-Date Return (2014)	5.6%
Volatility (60D)	9.2%
MXAPJ Volatility (60D)	7.4%
Outperforming Days	269 days out of 522
Average Daily Turnover	US$49 million
Average 2014E P/E	17.6x
Average 2014E P/B	2.6x
Average EPS Growth (14E)	15%

Related Research

• Asia Pacific: Portfolio Strategy Research: Bridging macro to micro: GS top-down stock selection, June 11, 2012
• Global Leading Indicator (GLI): May Final GLI - Still stuck in Slowdown, June 2, 2014

Contact Information

• Kinger Lau, CFA: +852-2978-1224, kinger.lau@gs.com

• Timothy Moe, CFA: +852-2978-1328, timothy.moe@gs.com

• Richard Tang, CFA: +852-2978-0722, richard.tang@gs.com

• Sunil Koul: +852-2978-0924, sunil.koul@gs.com

• Goldman Sachs (Asia) L.L.C.