3 biggest issues plaguing Asian consumer investors right now

Weak earnings outlook seen in key markets.

Post the 2QCY13 results and OSK-DMG Consumer Day, OSK's consumer analysts marketed their latest ideas to institutional clients in Singapore and Malaysia. OSK gathered three potential risks to Asian consumer industry's earnings outlook.

Here's more:

Concern #1: Weak consumer reading in key markets. As illustrated in our 2 Sept update, Double Blow From Misses, Higher Rates In 2QCY13, consumer confidence in China, Indonesia and Thailand have been on a similar downtrend in recent months while that for retail sales is worrisome.

For instance, Thailand’s June retail sales inched up only 1%,presumably due to softer agriculture income as well as the commencement of car loan repayments following the expiry of a popular first-car tax rebate scheme last year.

Meanwhile, Indonesian retail salesare expected to grow by only 1% in August, driven by festivities.

Concern #2: High valuations render stocks less attractive. Despite the weak readings, the valuations of consumer stocks in Indonesia, Malaysia and Thailand remain at the upper end of their respective P/E bands.

Concern #3: Risks from interest rate and earnings expectations.Investors generally agreed that the recent high volatility in share prices has mainly been driven by interest rate and earnings expectations.

For the former, a key consideration is the interest rate environment in 2015 as investors are expected to roll forward their valuations to FY14-15F estimates as 2014 nears.

In the case of the latter, investors are particularly concerned over Indonesia’s high inflation and weak currency, which could pose downside risks to 3Q and 4Q earnings.

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