Do any of the laggards look interesting? Figure 1 highlights that the six worst performers YTD in USD are Australia, Japan, Thailand, Malaysia, the Philippines and Indonesia. While these six markets are up between 10% and13% YTD in absolute terms, they are huge underperformers versus Asia Pacific ex-Japan’s 22% return. As we are Underweight five of them and Neutral only on Thailand (upgraded from Underweight only recently), we are looking at whether any of the laggards look interesting using five criteria. They are valuations (have they joined the Cheapest 4 club), has ROE started to rise, are they associated with consensus EPS upgrades, 2017/18E EPS growth and whether they are associated with foreign investor capitulation.    Only Japan has joined the Cheapest 4. Of the six laggards, Figure 2 highlights that only Japan has joined the Cheapest 4 club with three of them—namely Indonesia, the Philippines and Malaysia—still in the Expensive 4 club. ROE has bottomed for Japan, Indonesia and Australia. Japan is associated with upgrades to 2017E consensus EPS, while the TIPs (Thailand, Indonesia, Philippines) are associated with foreign investor capitulation).    We are reviewing our Underweight call on Japan. Among the six laggards, Japan looks the most interesting, passing 3-4 of the criteria that we set; Malaysia looks the least, passing none of our criteria.

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