Credit Suisse Cut Indonesia & Upgrades South Korea, Thailand Stocks

(Bloomberg) -- Credit Suisse Group AG raised South Korea to its most “overweight” stock market in Asia, while upgrading Thailand and China’s Hong Kong-listed shares, as exporters may benefit from faster-than-expected global growth. South Korea’s Kospi index may rise to 1,800 in six months from 1,623.06 at yesterday’s close, according to a Credit Suisse report today. Kospi stocks were increased to 4 percent from 3 percent of the brokerage’s model portfolio, Thai stocks were raised to 1.6 percent from 0.5 percent and China H shares to 3.3 percent from 2 percent. Indonesia and Singapore were cut.

South Korea’s “historically high leverage on Organization for Economic Cooperation and Development growth and key exporters’ improved global presence suggests to us that the Kospi will remain a sweet spot for investors over the coming months,” Credit Suisse analysts including Seok Yun wrote. Asian exporters such as Korean technology manufacturers and Indian software service providers will benefit as U.S. growth may continue to “surprise positively,” Credit Suisse analysts including Sakthi Siva and Kin Nang Chik wrote in the report. The brokerage cited 6 percent real gross domestic product growth the first year after previous “deep recessions” in the world’s largest economy and rising leading indicators on housing and capital spending.

Upgrade Outlook
The Organization for Economic Cooperation and Development will upgrade its outlook for the economy of its 30 nations, Secretary-General Angel Gurria said on Aug. 21. The Paris-based group said in June that the combined economy of the world’s most-industrialized countries will shrink 4.1 percent this year and grow 0.7 percent in 2010.

Indonesia’s stocks were cut to 3 percent from 4.3 percent of the brokerage’s model portfolio, and Singapore’s shares were reduced to “market weight” from “overweight” previously.

Siva, who joined Credit Suisse from UBS AG in June, was ranked second among Asia’s equity strategists by Asiamoney.

Credit Suisse, which increased its Kospi forecast from 1,650 previously, said its top Korean stock selections include Samsung Electronics Co., LG Display Co., KB Financial Group Inc., Posco and Hyundai Department Store Co. Even after recent gains, the Kospi offers “relative valuation merit” in Asia excluding Japan, given its relatively stronger earnings growth outlook, the analysts said.

Kospi Advance
The Kospi index has advanced 43 percent this year, compared with a 45 percent gain in the MSCI AC Asia Pacific excluding Japan Index. Stocks on the Kospi trade at 14.4 times estimated earnings, below the 17.3 multiple for companies on the MSCI AC Asia Pacific excluding Japan Index. The Kospi fell 0.6 percent to 1,613.16 in Seoul today. Samsung Electronics, the world’s second-largest mobile- phone maker, increased its share of the global market for handsets to 19.2 percent in the second quarter from 15.4 percent a year earlier, according to researcher Strategy Analytics. Hyundai Motor Co., South Korea’s biggest carmaker, boosted its U.S. market share to 4.8 percent in August from 3.3 percent a year earlier.

Thailand will see the second-biggest improvement in gross domestic product growth in Asia next year as exports rebound, according to Credit Suisse’s report. There will also be “the biggest potential from foreign buying” on valuations and prospects of an economic revival, it said.

Thai Economy
Thailand’s economy will improve in the third quarter before growing again in the final quarter, Finance Minister Korn Chatakavanij told Bloomberg Television in an interview today. The government will inject 200 billion baht ($5.9 billion) into the economy by the end of next year to bolster growth, he said. Thailand’s benchmark SET Index has gained 44 percent this year, set for its best annual performance since 2003, after a 48 percent slump last year. Southeast Asia’s second-biggest economy may grow as much as 3 percent next year, rebounding from a contraction this year, the government said last week.

The country’s economic recession eased last quarter on government spending and improving export orders. Gross domestic product fell 4.9 percent in the second quarter from a year earlier, after contracting 7.1 percent in the previous three months, the government said on Aug. 24. Overseas investors bought a net 32.4 billion baht of Thai stocks so far this year, compared with net selling of 162 billion baht in 2008, according to stock exchange data.

Credit Suisse favors Thai banks including Bank of Ayudhya Pcl and Kasikornbank Pcl, which may have “the greatest potential for earnings surprises,” it said. It also recommended Advanced Info Service Pcl, Total Access Communication Pcl and Airports of Thailand Pcl.