Bank of America believes that the United States will fall into a recession and this could have spillover effects to other regions, including Asia. “In the last seven US recessions since 1973, Asian stocks fell an average of 50% and [earnings per share] contracted by 30%. Both shallow and deep recessions were horrible for Asia,” Bank of America strategists, led by Ajay Singh Kapur, said in a July 18 note. The bank expects a “mild” recession in the U.S., where gross domestic product will contract around “Although China’s influence on the Asian economy/markets has surpassed that of the United States over the past 40 years, a recession in the United States is still very bad news for Asia/Emerging Markets (EM) stocks,” Kapur added. The bank noted that Asian stocks have lost about 34% of their market value this cycle, while growth in EPA is down just 6%.The story also suggests that Asia’s price-earnings multiples could compress another 20% if the bank’s forecast of a mild recession comes true, according to Bank of America analysis. “There is no sugarcoating the message for Asian equities and emerging markets nts: markets, multiples and EPS growth have a downside,” Kapur said. So how should investors position themselves in this environment? “We play our 26-stock basket of defensive, high-quality names: BofA Buy-rated large-cap stocks (top market cap [$10 billion]) with low price and earnings volatility, high profitability and high dividend yields, this reflects our cowardice and our need to survive beyond the limit,” Kapur said. the bottom half of Asia-Pacific coverage of the bank. They also pay a dividend yield of more than 2.5%. A number of financial stocks appeared on the bank’s screen. In addition to the above criteria, these stocks have a return on assets, a profitability metric. s ‘commonly used in the sector, of more than 1%. The list includes Indonesia’s Bank Mandiri, China Merchants Securities, Haitong Securities and Public Bank of Malaysia. The screen also showed several non-financial stocks that have flow positive free cash flow and expected to have a return on equity of more than 10%. China Shenhua Energy is one of three energy stocks to make the bank’s list. The stock has returned 41% this year in US dollars and is expected to grow EPS by 33.2% this year, according to Bank of America estimates. Singaporean telecom giant Singtel also made the display. Bank of America believes the company will grow EPS by 39.1% this year. Shares have returned 9.6% year-to-date. Other stocks that made the bank’s list include Taiwanese electronics contract maker Hon Hai Precision, Australian telco Telstra and Chinese appliance maker Midea.
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