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GLOBAL MARKETS-Asia shares rise on value buys; havens may still be attractive

Published 08/11/2011, 11:23 PM
Updated 08/11/2011, 09:24 PM

* Japan's Nikkei up 0.2 pct, Asia ex-Japan +1.3 pct

* Euro/Swiss franc slips after record jump

* Intraday volatility across markets high

* Europe's crisis still the medium-term focus (Updates prices, adds valuations, quotes)

By Kevin Plumberg and Swati Bhat

SINGAPORE, Aug 12 (Reuters) - Asian stocks edged up on Friday, as investors chased value picks after recent sharp volatility, though concerns over the European crisis may continue to fuel buying into safe havens like gold and government bonds.

Wall Street rose 4 percent overnight on high trading volume, with relatively low valuations and short-term oversold conditions attracting buyers, though a slide in U.S. stock futures in early Asian trade kept the region's climb modest.

Intraday volatility across financial markets has spiked over the past few weeks, with rumours flying about the health of European banks, questions mounting about the stability of funding markets and authorities struggling to solve a crisis of confidence in Europe.

A European regulator ban on short-selling in four countries' financial stocks would take effect on Friday, a coordinated attempt to ease panic whose effectiveness was immediately called into question by market participants.

Japan's Nikkei share average rose 0.2 percent, boosted by a 4.7 percent jump in Canon Inc shares, which were propelled by a stock buyback plan.

"The rebound is a little lukewarm as investors want to lighten their positions and take profits ahead of the weekend after a very turbulent week," said Mitsuo Shimizu, deputy general manager at Cosmo Securities in Tokyo.

The MSCI index of Asia Pacific stocks outside Japan was up 1.3 percent on the day but still looking at a decline of around 3 percent on the week, in line with the MSCI world stock index .

The benchmark's 14-day RSI, a measure of momentum that is used to indicate overbought or oversold conditions, was at 30.6, poised to snap a six-session string of readings below 30 -- the oversold threshold. That is the longest string of days below 30 since May 2010.

Even as equity prices dropped in the past few weeks, some fund managers in Asia with long-term horizons have been slowly shifting their portfolios by buying more cyclical stocks, which are more sensitive to changes in business cycles, and reducing exposure to so-called defensive sectors.

VALUE PICKS

The strategy may have more to do with valuations and positioning than a call on global economic prospects.

For example, in some Asian markets, stocks in a defensive sector such as consumer staples are running a bit expensive relative to growth prospects compared with a cyclical sector such as industrials.

A look at the ratio of price-to-earnings over estimated earnings growth next year shows Indonesia's consumer staples are trading at 1.3 times versus 0.5 times among industrials, Thomson Reuters Starmine showed. In Korea, staples are trading at 1.0 time versus the 0.3 times of industrials.

That investors in U.S. stocks focused more on value overnight despite the clear and present risks to economic growth is not so surprising considering the S&P 500 index is trading around 11.7 times forecast earnings in 12 months, well below the 10-year average of 16.2 times.

"We remain optimistic that risk assets (including emerging markets) will continue to bounce back after the current period of turmoil ebbs. For now, we believe that picking the EM equity markets with solid fundamentals remains a good strategy for global equity managers in this current environment," Win Thin, Global Head of Emerging Markets Strategy at Brown Brothers Harriman, wrote in a note.

In currency markets, the euro was down 0.3 percent to $1.4201 , though global focus would likely be on how the single currency fares against the Swiss franc.

The euro surged a record 5 percent against the franc overnight on speculation the Swiss central bank may be considering other measures to curb currency strength, including a peg to the euro. The euro was down 0.4 percent at 1.0801 francs in Asian trading .

"Market reaction was probably a reflection of how long participants are of the Swiss franc," said Richard Grace, chief currency strategist at Commonwealth Bank.

Gold prices were down 0.34 percent to $1,759.65 an ounce , some 3.4 percent below a record high of $1,813.79 hit on Thursday. Still the metal was up 5.9 percent this week, on course for the biggest weekly gain since February 2009.

Oil also snapped a two-day rising streak, falling 0.6 percent, after having gained 6.4 percent over the last two days. (Additional reporting by Antoni Slodkowski in Tokyo Editing by Ramya Venugopal)

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