By Richard Muckart, a fund manager at Premier Portfolio Managers It is now some seven years sin...
By Richard Muckart, a fund manager at Premier Portfolio Managers
It is now some seven years since the heyday of Asian markets and 12 years since the Japanese market was at almost four times the level that it is today.
With the exception of Australia, which made a new high this year, markets remain well below previous peaks. Indeed the steadiness of returns from Australia compares very favourably with all markets, especially on a risk-adjusted basis.
The fact that Australia has done well should be of no surprise as it has always been seen as the safe market in difficult times. Its sound financial system has been the backbone of growth and, like Britain in the 80s, it has been modernising and become more efficient.
However, that process has more or less run its course and the future holds less certainty. Indeed, to grow, many companies are now expanding overseas, Brambles and Amcor being two of note, or merging with international concerns, BHP with Billiton. The future for many will therefore be more influenced by world growth than it has been in the past.
While Australia is becoming more influenced by world forces, Asia appears to be going in the opposite direction. Although the industrialised northern economies are still trading heavily with the US and Europe, domestic growth in South Korea and beneficial effects from WTO entry for China are causing these economies to be less dependent on the West.
Stock markets have started to reflect this with their returns being less correlated with the Dow and Nasdaq than has been the case historically.
The key to the strength of Asia Pacific markets has been liquidity. Central banks and government agencies have kept the market supplied with plenty of cash. Whereas in the past some sterilisation took place, especially in Japan, this time round the authorities have been prepared to let things take their course.
Markets have reacted positively especially where alternative investments have offered little or no safe return. Recently, there has been some evidence that Japan may be going back to the old ways and sucking liquidity out of the system. This needs to be watched, as the market will not react kindly to the action although the currency may benefit. One of the causes of the malaise in the West has been accounting scandals. It is ironic that Asia should do well at this time given the long-held view of suspect practices in the region. However, perhaps what was perceived by Westerners as dubious practice now actually looks not too bad when viewed in the light of Enron.
We can therefore have confidence that many Asia Pacific companies are presenting a true and fair view in their accounts. On this basis, many are attractively priced.
Were international markets to regain their confidence, Asia Pacific might not perform as well as investors would seek opportunities in the bigger pond. Even so, this should not detract too much from them, and there is an opportunity to make more money from Asia Pacific markets over the next nine months.
Asian accounting practices look good.
Good liquidity situation.
Strong performance from Australia.
Investors might look to bigger markets.
Modernising process in Australia at an end.
Japan sucking liquidity out of system.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till