The Shanghai Composite's 10 percent drop this year, following a 14 percent slide in 2010, has driven down reported price earnings to 13.2 times, compared with 26.4 times at the start of trading last year, according to weekly data compiled by Bloomberg. China's central bank has raised interest rates three times in 2011 and lifted the reserve-requirement ratio to curb asset bubbles.
UBS also prefers China, along with India and Brazil, among emerging markets for 2012. Developing-nation stocks may rise 13 percent next year, with gains dependent on the "normalization of the equity risk premium," the brokerage said in a report yesterday.
Morgan Stanley's Garner said he's avoiding Indian equities, along with Taiwanese stocks, next year because of a "deteriorating" return on equity.
Estimates for Indian corporate earnings may be downgraded as Asia's third-largest economy slows, N. Krishnan, head of India research at CLSA Asia-Pacific Markets, said yesterday.
"There is still some downside to next year's earnings as well even though the cuts have been coming in," said Krishnan, whose team was ranked first for India research in a poll by Institutional Investor magazine this year. "We are in the midst of a broader slowdown in economic growth. Earnings could see some degree of cuts."