Asia-Pac Telecom Tracker:Your large cap telco needs a hug

We refer you to Fig 3, which shows how the telco index relative to the broad market is near 10-year lows, set just before the European Financial Crisis. Their defensiveness is no longer valued, and their efforts to restore growth tend to be dismissed by a skeptical market. In 2017, corporate turns for the better have started to appear, and the telcos concerned have been squeezed up as investors scrambled to be less underweight. Softbank benefitted from Alibaba’s rise and the Vision Fund, Bharti from consolidation, Unicom from mixed ownership, DTAC from spectrum, and PH operators from greater profit focus. More than usual, the way to profit in the sector has become to guess which untouchable telco will change for the better next. We expect improved industry structure potential exists in AU, CH, HK, IN, ID, SG and TW, and see value in operators in those markets, particularly CM, CT, Idea, ISAT, CITIC Tel, and ST, and to a degree at SKT. While we believe the telecoms have entered a bull market, there may be some hiccups, and incumbent operators, like CM, CT, ST, and SKT. While we remain buyers of Japan’s telcos, we prefer Asia-ex. With the market having rallied strongly in the last decade, we believe being able to pick up these telcos often at or below 10-year median valuations should be rewarding. Additionally, swinging exposure towards the sector may be especially timely given geo-political instability, the pending reversal of QE, and the US government hitting its mandatory debt ceiling.