Bank of America believes the US will slide into a recession and that could have repercussions for other regions – including Asia. “In the past seven U.S. recessions since 1973, Asian stocks have fallen an average of 50%, and [earnings per share] contracted by 30%. Both shallow and deep recessions have been terrible for Asia,” Bank of America strategists led by Ajay Singh Kapur said in a July 18 statement. The bank expects a “shallow” US recession, with gross domestic product shrinking by around 1.5% from peak to trough. While China’s grip on the Asian economy/markets has rushed ahead of the US over the past 40 years, remains a US recession is very bad news for Asian/emerging market equities,” added Kapur. The bank noted that Asian stocks have lost about 34% of their market value this cycle, while EPS growth is down just 6%. A mild recession is coming, according to Bank of America analysis message for Asian and EM equities – markets, multiples and EPS growth all have downsides,” Kapur said. ‘So how should investors position themselves in such an environment? ent? “We are replicating our 26-stock defensive, high-quality basket of stocks – large BofA Buy-rated stocks (cap above [$10 billion]) with low price and earnings volatility, high profitability and high dividend yields — that reflects our cowardice and needs to survive past the bottom,” Kapur said. They also pay a dividend yield of over 2.5%. A variety of financial stocks popped up on the bank’s screen. In addition to the above criteria, these stocks have a return on investment — a profitability metric commonly used in the industry — of more than 1%. The list includes Indonesia’s Bank Mandiri, China Merchants Securities, Haitong Securities and Malaysia’s Public Bank. The screen also featured several non-financial stocks that are free cash flow positive and are expected to have a return on equity in excess of 10%. China Shenhua Energy is one of only three energy stocks to make the bank’s list. The stock has returned 41% this year in dollar terms and is expected to climb $33 per share. 2% this year, according to Bank of America estimates. Singapore’s telecom giant Singtel also made the screen. Bank of America expects the company to grow earnings per share by 39.1% this year. The stock has returned 9.6% year-to-date. Other stocks that made the bank’s list include Taiwanese electronics contract manufacturer Hon Hai Precision, Australian telecoms company Telstra and Chinese electronics maker Midea.
