The smaller Asian markets are being neglected due to liquidity concerns, with the majority of fund m...
The smaller Asian markets are being neglected due to liquidity concerns, with the majority of fund managers preferring Korea and Taiwan.
The under-owned nature of these markets has thrown up some interesting opportunities, according to fund managers, with both Thailand and Indonesia offering significant upside potential.
Hugh Young, head of emerging markets at Aberdeen Asset Management, says all world markets have bounced on the back of predictions that the US economy will recover in the second half of 2002. The Thai economy, in particular, has been dragged along by this bounce and is up approximately 15%-20%.
Young says: 'Thailand is a very cheap market, but there are major political questions over the country, with concerns over reform, restructuring and dealing with bank debt problems after years of previous mismanagement. Prime minister Thaksin Shinawatra was appointed in May 2001 and we are still waiting to see what he will do.'
Christian Dangerfield, chief investment officer at Govett Investments, says that since 11 September technology stocks in Asia have risen approximately 70%. Since that point, he says the house has been trimming its tech holdings and has cut back in Taiwan and the higher beta Korean holdings.
Dangerfield says: 'We will look to re-enter these markets in the second quarter this year, but at present we believe these markets have run too far too fast and that the valuations are not supported by the fundamentals. We are putting the money we have taken out of these markets into Thailand. There is an interesting fundamental story in Thailand, with a reduction in underperforming loans and a significant improvement in Thai bank balance sheets. The problem that has existed before in Thailand has been the political vacuum. While the new Prime minister is regarded more of a businessman than a politician, he is more dynamic than anything Thailand has had and the economy is now showing signs of improving.'
Dangerfield says that in 2002, the opportunities will be in the non-consensus stories like Thailand and Indonesia. In Indonesia, he says there are cheap, well managed companies that are trading on four to five times earnings.
Young says the questions that surround Asia as a whole relate to how the world economy will perform, as well as the strength and integrity of the region's political leaders.
He says: 'Thailand is in no-man's land at the moment. On one side of it you have Singapore, which has a straight government that has not put a foot wrong and is very transparent in all that it does. The economy has suffered because it is dependent on trade, but so far the government has done all the right things to suggest it will do well going forward.
'On the other side of the scale there is Indonesia, which is still selling off assets and is still a long way off being a power house economy in Asia.'
On the whole, Dangerfield says that politicians in Asia are improving.
'We are positive on Asia ex Japan as we believe there will be rotational activity, and the fundamental story is positive,' he says. 'On a price to book basis Asia is cheap now and it is reasonable to expect 25%-30% growth in Asian markets this year.'
Smaller Asian markets looking very cheap.
25%-30% growth expected in Asia.
Standard of politicians improving in Asia.
Liquidity concerns in the smaller economies.
Questions still hang over many politicians.
US trade Asian economies suffering.
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