Standard & Poor?s (S&P), a global credit rating agency in its 2008 Asia-Pacific Markets Outlook report has kept a neutral outlook for the Indian equity market despite it having the potential to test further upside in the range of 10-15% by the end of December ?08.
The report says, ?We believe that the market is at a comfortable point with corporate earnings growth to support further upside in 2008. However, we remain neutral in light of the recent government moves to limit foreign funds inflow via offshore derivatives as this may mute additional inflows?. On overall Asia-Pacific equity markets, the report states that the development in the US and China are likely to continue to be the main drivers for the regional equity markets in 2008. While positives would come from the interest rate cuts in the US, stable US economic growth and continued strength in Chinese demand and wealth creation.
However on a more cautious note the report states that the key risk to Asian markets is their frontier valuations. Other than China H-shares, which have a relatively short history, most Asian markets are currently trading well within their historical ranges and are not excessively expensive given the potential 15%-25% EPS upside, despite this years strong equity market performances. And further upside will be dependent on earnings growth being sustained at the current levels. As such, we expect 2008 to be a more difficult year for returns and we would not rule out a sharp correction if the share prices move ahead of fundamentals.
S&P is overweight on China H-shares, Hong Kong, South Korea and Thailand while it is underweight on Japan. The rating major has kept a neutral outlook on Australia, Malaysia, Singapore and Taiwan.
