Even if history only rhymes, we believe earnings estimates are still way too high —
If current ROE falls to the levels of 1991 or 2001 recessions, earnings appear set
to fall by 31% or 52% even before taking into account the current IBES forecast of
15.7% growth for 08. Even if the current downturn is only half as bad, the
earnings swing is 30%age pts. Earnings forecasts appear most at risk in the
energy, materials, other financials & industrials sectors.
 Valuations are not pricing in anything like a re-run of the 1991 or 2001 recessions
— Asia ex is currently trading at 2.4 times P/BV. The low in 1991 was 1.4 times
P/BV and back in 2001 the low was 1.2 times. This leaves on average 44%
downside for Asia ex. Valuation-wise (PBV), the biggest downside is in China,
India and Indonesia. The least downside is in Thailand, Malaysia, Taiwan,
telecoms, utilities and tech. Assuming it rhymes.
 Asia is more cyclical today and less interest rate sensitive — Cyclicals now
account for 40.9% of the Asian index, a 30-year high whilst interest sensitivity
within the index are at a 30-year low. Operational leverage is at a decade high
which makes forecasting more treacherous still. All the data suggests that Asia ex
is more rather than less reliant on global demand and that foreign equity capital
flows play an important role in the region.