BANGALORE China and other East Asian stock markets will be able to shrug off recent turmoil and post some gains in 2013 on hopes of an economy recovery, policy easing in the second half of the year and attractive valuations, a Reuters poll showed on Tuesday.
Fears that the U.S. Federal Reserve may soon start rolling back its stimulus programme caused large outflows of investor money from emerging Asian stock markets in recent weeks, sending most Asian indexes, except Taiwan's Taiex, into the red.
Indeed, the rout sent valuations in China, Hong Kong, South Korea and Taiwan below their 5-year average, as measured by their 12-month forward price-to-earnings ratios, according to Thomson Reuters data.
But equity analysts polled by Reuters between June 10-17 said those markets would claw back those losses, and gains from now until the end of the year would range anywhere between 7 percent in Taiwan to 11 percent in Shanghai and as much as 13-14 percent in Hong Kong and South Korea.
Still, most analysts were caught off-guard by the recent sharp plunge in stocks and earlier estimates of double-digit gains for 2013 have now been scaled back sharply.
"Markets will continue to speculate when the U.S. Federal Reserve will start to taper its quantitative easing, but I don't think the Fed will act anytime this year," said Linus Yip, strategist at First Shanghai Securities.
The Fed's latest two-day policy meeting ends on Wednesday and markets will be keen for fresh guidance on when it would begin withdrawing its stimulus support, especially after recent jobs and housing data showed the world's largest economy appeared to be on a stable recovery track.
Notwithstanding the risk of stimulus tapering, equity strategists, usually a bullish lot, have again predicted almost double-digit gains from now until mid-2014 for stock indexes in China, Hong Kong, South Korea and Taiwan.
The Shanghai SSE composite index is expected to end the year at 2,400 points, representing a rise of around 11 percent from current levels and a full-year gain of nearly 6 percent.
It is then expected to climb to 2,500 by June next year.
"China's economy is likely to recover gradually, lending support to the stock market. However, the rise would be limited in the second half, curbed by resumption of IPOs and tighter liquidity," said Dongguan Securities Co strategist Pan Shaochang.
Analysts said soft Chinese economic data, sluggish corporate earnings and the People's Bank of China's reluctance to inject funds into interbank markets despite a cash shortage have contributed to pulling down stock indexes in Hong Kong and mainland China.
But attractive valuations could bring the shine back on these stocks.
The Shanghai SSE composite index and Hong Kong's Hang Seng index .HSI are currently trading at over 9 times their 12-month forward earnings projections, way lower than their 10-year average of over 15 percent and 13 percent, respectively.
The Hang Seng is predicted to reach 24,000 by end-2013, according to the poll. That would translate into a rise of more than 13 percent from current levels and a full-year gain of close to 6 percent.
The index was seen hitting 24,500 by mid-2014.
SOUTH KOREA, TAIWAN STOCKS TO SURGE
South Korea's key share index also is seen making firm gains in the second half of the year, led by domestic consumption stocks and technology heavyweights on expected signs of improvement in both domestic and global economies and companies' earnings.
The median forecast was for the benchmark Korea Composite Stock Price Index (KOSPI) to rise 14.2 percent to 2,150 points by the end of this year from Monday's close of 1,883.1 points. That would mark a gain of close to 8 percent for the full year.
"We expect market fundamentals including economic health and corporate earnings to improve in the second half of this year," said Cho Yong-hyun, market analyst at Hana Daetoo Securities in Seoul.
Meanwhile, Taiwan's TAIEX is expected to end the year at 8,550 points, little changed from earlier expectations, but up 4 percent from current levels and 11 percent higher than its 2012 close of 7699.5.
Shares in Taiwan have weathered the recent turmoil better than their peers in the region largely due to a more resilient electronics and diversified semi-conductor market that relies on demand from global technology giants such as Apple Inc.
(Polling by Chen Yixin and Samuel Shen in SHANGHAI, Yimou Lee and Clement Tan in HONG KONG, Jung Youn Park in SEOUL, Carol Lee in TAIWAN, Ashrith Doddi and Snehashish Das in BANGALORE; Editing by Kim Coghill)