Now Battling the Real Demon
Perspective and Portfolios
Asia Pacific Equity Strategy
Adrian MowatAC
(852) 2800-8599
adrian.mowat@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Rohan Ghalla
(91-22) 6719-8289
rohan.d.ghalla@jpmorgan.com
J.P. Morgan India Private Limited
Rajiv Batra
(91-22) 6695 3224
rajiv.j.batra@jpmorgan.com
J.P. Morgan India Private Limited
See page 93 for analyst certification and important disclosures, including non-US analyst disclosures.
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Figure 1: Asia relative to the world
90
105
120
135
150
165
180
2004 2005 2006 2007 2008
APx J /
EM Asia /
World
Source: MSCI, Datastream, 30 January 2009.
Overweight markets:
China, Thailand and
The Philippines
Underweight markets:
Hong Kong, Australia, South
Korea and Indonesia
For our Asia Pacific ex Japan Big 100
stocks and Regional model portfolio, click
here to download the Bloomberg
spreadsheet.
• There are two key changes for Asian markets; significantly weaker
economic growth and the resultant change in monetary and fiscal policy.
In this report, we describe the various monetary cycles in Asia. As is the
case with this type of analysis in Asian markets, the time period and
cycles can only provide a guide, rather than generate a statistically
significantly conclusion. Please see our detailed notes on the monetary
policy cycles for all the countries on page 6.
• We use the historical evidence from the US and global sector
performance in monetary cycles as a guide to sector positioning in Asia.
Our advice is to buy early cyclicals; financials, domestic consumer
discretionary and consumer tech. Page 5 has a note on the J.P. Morgan
investment clock for global relative sector performance.
• Synchronization rather than decoupling was the economic theme of
2008. The commodity inflation spike in early 2008 helped synchronize
the monetary policy response across emerging economies. Policy was
designed to slow economic momentum for more than 12 months, this
proved unfortunate. The intended lagged effects weakened EM economic
momentum just as these economies were forced into a recession by the
severe demand shock from developed economies. The question for 2009
is will emerging economies be LIFO (Last in First Out) or LILO (Last in
Last Out) in this global recession. We sit in the LIFO camp; that is EM
were the last into the recession and will be the first out as the move to
pro-growth monetary policy will work. Chinese economic momentum is
critical to this view. For more risks, see page 33.
• Our base case is that equities are in a trading range as the conflicting
forces of extremely poor economic and profit data compete with
improving credit markets and pro-growth monetary policy. For MSCI
APxJ our range is 210-260; the current value is 225. Investors should use
GTC limit orders to take the emotion out of accumulating a portfolio
positioned for 2H09 reflation, while reducing defensive names.

Table of contents
Late to the Pro-growth Policy Party........................................3
Reviewing Asian Monetary Cycles..........................................6
Country Asset Allocation.......................................................28
Risks........................................................................................33
Regional model portfolio by country....................................36
Regional model portfolio by sector ......................................37
Australia: Risk returns ...........................................................38
China: Stimulus for decelerating growth .............................40
South Korea: Policy cushion.................................................42
Taiwan: Poor data remains but stabilizing...........................44
Hong Kong: A better tomorrow.............................................46
India: New Year, renewed challenges...................................48
Singapore: No more a safe haven.........................................50
Malaysia: Keep the faith for 2009..........................................52
Thailand: Narrowing political discount ...............................54
Indonesia: 2C’s - Commodity and Currency ........................56
Philippines: Easing the way out............................................58
Our extended markers ...........................................................60
Macro Monitor.........................................................................66
Market drivers.........................................................................67
Asia Pacific ex-Japan Big 100 ...............................................68
Asia Pacific Strategy Dashboards ........................................75