6) For Asia Tim Moe and team expect single-digit earnings growth for both 2015 and 2016 and, with little room for valuation expansion, forecast the Asia pacific ex Japan (MXAPJ) to reach 520 over 12 months, a price return of 9%. However they see quite wide dispersion across the markets with their favourites being Indonesia (raised to overweight) and Taiwan, China, India (staying as overweight). An additional attraction for Asia is its exposure, in parts, to a stronger US economy and lower FX risks than for Japan and Europe. Meanwhile under the hood there are some exciting opportunities that include beneficiaries of reform, mainly in China and India, the growth of the internet in India, Taiwan (the Internet of things theme) and mega caps in Korea.
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10) Amongst the key risks politics features more highly than generally in the past. Geopolitical tensions could spill over into willingness to take risk. Europe has important elections next year in the UK, Greece, Spain and Italy. In Asia too there are important regional elections in 2015/16 while reform efforts will impact China, India and Indonesia. There are, of course, downside risks to growth too, but on balance we see these risks more skewed to the upside relative to what equity markets have priced. Another important upside risk along this dimension is the possible boost from lower energy prices (we forecast US$84/bbl average for Brent in 2015). Of course this boost is likely to be greatest for the US but should not be dismissed for other countries too.
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