MSCI Asia ex. Japan up 18.5% from its lows. With May approaching in a week's time, a key question once again for investors is whether to sell in May. Two factors appear to suggest investors should Sell in May. One, Figure 2 highlights that MSCI Asia ex. Japan (MXASJ) has corrected in five of the past six years in May by an average of 3.5%. Two, Figure 1 highlights that the current MXASJ rally of 18.5% from its lows has already exceeded in magnitude three of the past six rallies.

　　However, two other factors suggest the rally could run further. One, foreign investor capitulation. Figure 3 highlights that all six of the past MXASJ rallies have only ended after foreign investors turned net buyers on a rolling 12-months basis while in the current episode, foreigners are still net sellers to the tune of 0.4% of market cap. Two, if commodity prices are indeed bottoming, it suggests that MXASJ ROE could be bottoming with ROE potentially rising by 1-1.5% in late 2016 and 2017. We estimate this upside potential by comparing the headline ROE of 10.1% in 2016E with ROE ex. Energy and Materials of 11.5%. See Figures 4-5 and 9-15.

　　Our conclusion is to buy the dips rather than chase the rallies. With our year-end target for MXASJ of 550 offering 6% potential upside, we suggest investors buy the dips rather than chase the rallies.