Industries with a larger share of demand originating from Asia are likelyto outperform. Asia’s economic development and transport penetration havegreater upside potential and are less affected by Europe/US. Logistics costs aregenerally higher in Asia, providing opportunities for improved efficiency.
Domestic road transport demand looks the most resilient. Dividend yieldsare also the highest in this segment. Chinese tollroad operators have the bestlonger-term growth potential in Asia. Jiangsu Exy, Transurban are top picks.
Passenger rail demand is brisk and also less cyclical – we like JR East. Akey risk is the launch of low-cost carriers in Japan which could take awaymarket share and drive prices lower. Conversely, the expanding hi-speed railservices in China could hurt road transport and affect airlines’ short-haul routes.
International air travel demand likely to lead growth as economicdevelopment continues and penetration remains low with limited risk of longtermstructural oversupply. Airlines, especially low-cost carriers, are the mostleveraged plays with upside from falling fuel prices. Air China and AirAsia offerthe best long-term growth, in our view. Private jets could gain popularity. Wesee aerospace & MRO, airports, airline service providers and travel agencies assafer alternatives with higher long-term profitability. We like Korea Aerospace,BCIA, Cox and Kings.
Slowing global trade underpins our cautious view on container shipping,ports, rail and logistics sectors, although shipping will likely see earlier earningsupgrades due to falling fuel prices and better-than-expected freight rates fromcapacity discipline. We would avoid China Merchants, ICT, CONCOR, but wesee value emerging in OOIL, CSCL, Evergreen, NOL and MOL.