By Benoit Descourtieux, a fund manager at Lombard Odier In 2001 only one major region ended the ...
By Benoit Descourtieux, a fund manager at Lombard Odier
In 2001 only one major region ended the year in positive territory, Far East ex-Japan. In comparison, the Nasdaq was down just short of 17% in dollar terms and the MSCI Japan index only managed -26%.
Looking back over last year, it seems that third quarter was the bottom. The rate of decline in exports looked to have hit the bottom in August/September. Singapore, Korea and Malaysia's economic growth statistics were less weak than anticipated and output in India had started to recover.
This year sees most brokers upgrading their economic and corporate earnings forecasts for the region. Most Asian companies start 2002 with much leaner structures post the Asian crisis.
The measures taken post-1997 are now bearing fruit. They start the year with larger cash flows, healthier balance sheets and in the knowledge that they are better placed than most to benefit from any upcoming cycle upturn. However, 1997 is not so long ago that they will throw caution to the wind.
At Lombard Odier, we believe that exports will start to bounce back in the second half, with signs of recovery coming through in the first. The high-tech sector in Asia is recovering much faster than anticipated with the spot price for a 128mb DRam at $1.50 at the beginning of October and at $3.34 by mid-January. And, if you compare the unit cost price at Infineon of $3 to Samsung's $1.8 you can see the real competitive advantage.
However, the improvement in exports is not limited to high tech. In China, high tech only equates to 14% of total exports for example. We also expect to see improved inventories, better earnings growth and a return in investor confidence. Most central banks cut interest rates very early, so there is a lot of liquidity in the market, which we believe should start to find its way into equities.
Valuations are also much cheaper than many other markets. The sectors we favour are information technology ' especially in Korea, Taiwan and Singapore, and consumer discretion- aries, especially retailers in Hong Kong, Korea and the Philippines.
China disappointed in 2001 as the petrochemical sector was hit particularly hard. A rebound will take place only when Beijing decides to cut interest rates. In general, corporate profit margins are under pressure and investors will still have to be cautious. Other places like Korea, Taiwan, Thailand and the Philippines look more attractive for now.
The slide in the yen is, we believe, more important than a strong dollar. A weak yen obviously affects the competitiveness of the region, particularly Korea and Taiwan.
In our opinion, if the rate remains between 130 and 135 yen to the dollar the region will continue to recover.
As far as the Chinese Renminbi and Hong Kong dollar are concerned, we do not foresee any major risks. The Chinese Government is clearly displeased with the slide in the yen but with the change of political leadership expected in September 2002, the Government's key aim will be stability.
We do not foresee any devaluation and believe that the Hong Kong dollar/US dollar peg will remain.
Brokers upgrading economic forecasts.
Companies have leaner structures post crisis.
Measures taken post crisis now bearing fruit.
China disappointing in 2001.
Petrochemical sector hit particularly hard.
Yen has continued to disappoint.
Taking the time to look
More than half of people over the age of 55 see financial security as a top priority in retirement, yet a third allocate more time to buying a new car, research from Legal & General (L&G) has found.
Rebranded from OMW
Number of benefits