Asia: 2008 Outlook
7 December 2007
2 Citigroup Global Markets Equity Research
Dear Client
Welcome to the fifth edition of The Road Ahead. Whatever else might be said about the year that is drawing to a close, it
has certainly not been dull or uneventful. Nor do I come across many people who expect 2008 to be any more settled or
predictable. Our promise is that we will intensify our efforts to broaden your range of investment perspectives and
actionable ideas at a time of maximum uncertainty and minimum clarity.
As you will see from the title of this report, our regional strategist Markus Rosgen is
predicting the MSCI Asia ex-Japan will fall 20-25% next year, bringing regional
valuations back to their fair-value trendline. To be clear, though: this is a correction
in a secular bull market and not the end of the Asian growth story. Of course, volatile
markets present excellent opportunities for the informed investor – a window in which
to be greedy while others are fearful, to cite a Warren Buffet coinage. Capital
preservation is not a shameful strategy either. For those who believe the risks are
mostly to the downside, this issue of Road Ahead looks at sectors and stocks that
would be most exposed in various bear-case scenarios.
Our analysts don't need reminding that fading momentum in Asian markets means
they have to challenge rigorously their bottom-up assumptions and valuation
frameworks. We continue to be proud that our 731-strong stock coverage has the
highest proportion of Sells (24%) and smallest ratio of Holds (13%) of any major
research house in Asia. Some of our Sell-rated stocks are the bluest of Asian blue
chips. Many are first-class businesses run in a first-class way, but we will never argue
that stocks are worth buying at any price.
A key part of our function continues to be bringing together investors and corporate decision-makers for group and oneon-
one meetings. To an already busy conference schedule, we added inaugural events in Indonesia, Korea and Taiwan
during 2007, as well as conferences on regional property, climate change, small caps and Indochina. Our second Greater
China Conference built on the success of the first, with hugely positive feedback from clients and corporates alike. We
hope to see you at these events in 2008.
For those of us toiling at the research coal-face, it was reassuring to come across an article sub-titled "Rumours of the
death of research have been exaggerated" that appeared in The Economist in August and that offered the view: "As
uncertainty grows, investors seem to be placing a higher value on research than they did only months ago." The Road
Ahead 2008 is part of our pledge to be visible, anticipatory and bold at a time when the fog of uncertainty is thickening.
Warm regards,
Adrian Faure
Director of Asia Research
7 December 2007, Hong Kong