Taiwan and Thailand will storm ahead of other Far Eastern markets as sentiment towards the US improv...
Taiwan and Thailand will storm ahead of other Far Eastern markets as sentiment towards the US improves, according to Richard Scott, fund manager of Exeter Pacific Growth.
He says: 'Far Eastern markets have become very cheap and valuations are close to levels seen during US recessions in 1975 and 1982. The global slowdown has undermined the region, but we believe the markets have now fallen a bit too far.'
Ian Wells, investment manager Pacific equities at Aegon Asset Management, says: 'Which countries you think will outperform really depends on your time horizon. We are cautious at the moment because of the global slowdown. Sentiment and visibility is also poor, although a positive factor might be that interest rates fall even further.'
Scott says history indicates that interest rates and tax cuts in the US eventually boost Far Eastern economies because they are so dependent on exports. He adds: 'It is likely that the US will re-accelerate and that capital spending will increase, resulting in a pick up in export demand.
He believes the ensuing turnaround in the Far East will be sharp and fast as there is a lot of liquidity and stock prices have fallen so far. He says: 'The 1997 Thai baht crisis snowballed in the region but now most markets are more robust and running current account surpluses.'
Thailand will be a surprise outperforming market because it has become so cheap, says Scott. 'Despite property and banking problems in the country, the market is up 17% this year and stocks still look cheap,' he adds. 'There are good yields available and the market will continue to grow. We invest in closed-end funds exposed to that region, such as Aberdeen New Thai.'
When there are signs of a stronger global picture, Wells will increase his exposure to Taiwan. He says: 'In the short term, there is the possibility of some direct links with China, which will be positive for sentiment and encourage cross border investment flows.'
He adds that there is concern over market volatility because brokers are keen to pull the trigger on semiconductors. He says: 'There are some notes from analysts to buy, but the reasoning is pretty thin. The work looks at past cycles and goes back 10-15 years, whereas we are now in a pretty unique cycle. We are overweight Australia, which is a defensive market and an obvious source of funds when we look to buy more cyclical markets.'
Scott also likes the larger Taiwanese market because it was severely affected by US technology. He says: 'It was heavily exposed to that market but when the US finally turns round Taiwan will be the first and quickest to recover.'
Wells is also overweight Hong Kong, even though it does not look good in the short term. He says: 'There may be some short-term sentiment swings and the long-term outlook for electronics is difficult. We are overweight here because things are improving globally. People are pointing to the fourth quarter for a US recovery but we feel it might be early 2002 before we see more optimism. When confidence returns it will be good news for property and trade flows from Hong Kong.'
• Far East will turnaround sharply.
• Taiwan likely to outperform.
• Good valuations in Thailand.
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