Morgan Stanley has an interesting presentation a few days ago which highlights the possibility that some Asian companies will likely be sold by European shareholders as Europe deleverage.
This idea is consistently with out belief that Asian markets are not immune as Europe deleverages as European investors seek to sell assets outside and repatriate funds back to Europe to service debts.
Morgan Stanley has identified a few factors that could potentially make these Asian companies more like to get sold:
1. Realizable profit since investment
Firms may be more likely to sell assets with higher realizable gains (vs. assets with realizable losses).
2. European shareholder’s overall leverage
Shareholders with high leverage have more need for and hence, we believe, a higher likelihood of deleveraging (Leverage = 2011 Total assets / Current market cap). By definition, financial service firms such as banks tend to have higher leverage, and thus a higher likelihood of deleveraging, in our view.
3. Size of holding relative to shareholder’s overall assets
Selling large holdings relative to one’s overall size of assets is relatively difficult and slower, since these holdings are more likely to be “core” to the business.
4. Size of holding relative to daily traded value
If the market value of the Asian investment is low relative to its daily traded value, in theory a lower market impact makes it easier to sell.
5. Current price relative to fair value
A high current price relative to fair value (we use our analyst’s base-case estimate as a proxy) may encourage the European owner to sell. The low buying interest for such “overvalued” stocks may also cause a higher stock price impact. We ignore stocks without base-case fair value estimates.
6. Lock-up period
Stakes without lock-ups or partial lock-ups or lock-ups that expire sooner can be sold before other stakes.
Based on these factors, they have produce an overall ranking and identify 41 Asian companies that are the most likely to got sold. The list below is an abridged version of the list of 41 Asian companies that are most likely to be sold, ranked by overall ranking:
Source: Morgan Stanley
This article originally appeared here: 41 Asian companies that may be dumped as Europe deleverages
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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