Our outlook for Far Eastern equities in the near term is one of cautious optimism. Activity in the ...
Our outlook for Far Eastern equities in the near term is one of cautious optimism. Activity in the region's markets should be affected both by near-term nervousness about the prospects for rising US interest rates and inflation, and the global correction in new economy names, which have also been leaders in Far Eastern stock indices.
We believe patient investors should enjoy what we ultimately expect to be a significant long term appreciation trend.
Many Far Eastern markets are trading at valuation levels that are compellingly low based on earnings for 2001 and beyond.
Valuations in certain nations and industry sectors are especially attractive compared to their own historical levels and the current levels for their counterparts elsewhere in the world. There is plenty of liquidity in the Far East, fuelled by burgeoning current-account surpluses and banks that are awash in deposits while making relatively few loans.
This helps to keep domestic interest rates and borrowing costs down; makes it fairly easy for high-quality corporate borrowers to meet their funding needs; and mutes the dangers of potentially higher US interest rates and inflation.
We are encouraged that the momentum for recovery is coming mainly from rising personal consumption, which tends to build on itself and also helps to fuel retail participation in the financial markets.
We see enormous potential in China, both as an engine of Far Eastern growth and a magnet for foreign capital flows into the region.
China should realise much of that potential in the not-too-distant future as a result of its impending membership in the World Trade Organisation; the government's commitment to liberalising the nation's economy, including the capital markets and banking system; and the fact that China's economic recovery is on track.
There are real risks out there, too. Global economic growth appears to be peaking. If this slowing exceeds expectations, there could be a negative knock-on effect on economies and stock markets worldwide.
We would not be surprised to see weakness in some Far Eastern currencies, particularly in Southeast Asia. A weak yen, for instance, would hurt the competitiveness of non-Japanese Far Eastern exporters.
We favour countries that ought to benefit from the factors previously cited. Accordingly, we are most focused on North Asia, including China and Taiwan, and least exposed to Southeast Asian countries.
Stock selection emphasises companies should be helped by a cresting in US interest rates; are undervalued; are likely to profit from domestic economic recoveries and improving consumer confidence and expenditures; and possess sustainable competitive advantages.
Robert Hrabchak is fund manager of the Credit Suisse Orient Fund
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined