Southeast Asia looks set to outperform other emerging markets over the near term as the region is bo...
Southeast Asia looks set to outperform other emerging markets over the near term as the region is bolstered by rising consumption and avoids political strife.
While ongoing political uncertainty in Brazil and Turkey has led to concerns over the short to medium-term outlook for Latin America and emerging Europe, Southeast Asia has eased out of a second-quarter dip caused by fears of a prolonged US recession.
Fears of a further breakdown in Sino-Taiwanese relations proved unfounded as Taiwan's president distanced himself from calls for a referendum on declaring independence from the People's Republic. Although indices of both countries took negative hits on the back of this speculation, news that China's official GDP growth figures for the second quarter reported an 8% year-on-year rise boosted confidence in the region. This was aided by the revelation that China welcomed some $44bn in foreign direct investment flows in June.
Levels of volatility have remained high throughout recent weeks, though, with good news typically being tempered by negative stories.
Chris Tracey, global strategist of JP Morgan Fleming, is positive on the Asia Pacific region and suggests that in a low growth world, emerging markets are looking increasingly attractive.
Tracey says: 'Despite recent mixed performance, we still believe the Pacific region is well positioned to continue to outperform. Asian stock market valuations are very attractive compared to those in the West, while Asian manufacturing companies continue to benefit from the secular rise in outsourcing from Japan and the West. The combination of low valuations and increasing demand for Asian products and services is very supportive of earnings going forward.'
Venkat Chidambaram, emerging markets fund manager at GAM, says the outlook for emerging markets as a whole is positive, although he too is favouring Asia, where he prefers the valuations available. Chidambaram's strategy differs from country to country, although there are discernible themes in his current asset allocation.
He notes: 'Smaller Asian countries have held up well and we have increased the fund's exposure to Malaysia on a selective basis, focusing on companies with foreign links such as Malakoff, a power generation company partly owned by International Power of the UK.
'In Korea, we are focusing on companies that can benefit from growing domestic demand, such as Shinsegae and SK Telecom.'
Korea has started to turn around after recent setbacks, he adds. Consumer demand is growing and the consumer expectation index reached new highs in June after two months of decline.
Chidambaram stresses the underperformance of developed markets has had a major impact on emerging markets, leading to large inflows of foreign money as asset allocators look for growth markets.
Much of this money has found its way to Asia amid concerns about Brazil's ailing economy, following on from the region's earlier Argentinian crisis and the possibility of further contagion.
Southeast Asia to outperform.
Consumer demand in Korea growing.
Valuations better than developed markets.
Concerns over Brazilian election.
Turkey's political instability unnerving.
Concerns about profit warnings in BBrazil.
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