Allianz Dresdner Asset Management (Adam) fund manager Ronald Chan expects Asian stock markets to re...
Allianz Dresdner Asset Management (Adam) fund manager Ronald Chan expects Asian stock markets to remain in their current trading range for the foreseeable future.
Nevertheless, there are investment opportunities in the region, according to manager of the Adam Tiger and Little Dragons funds.
Chan used the history of the Dow Jones index to demonstrate the likelihood of the Asian markets trading sideways. From 1944 to 1964, there was a strong bull market, followed by some 18 years of consolidation in the US.
'Then there was a bull market from 1982, which lasted all the way to year 2000,' he noted. 'Like that 18-year flat period in the Dow, I expect a prolonged consolidation from here going forward in the Asian market.'
Despite this, Chan said, Asia looks cheap from a global perspective. The MSCI Asia Free ex-Japan index is trading at a P/E of 11.9 times for 2003, compared to the S&P 500 at 17.5 times and the FTSE EuroTop 100 at 16.9 times 2003 earnings.
'It is pretty obvious Asia is trading at a big discount to both,' Chan added.
Because he expects the market to remain in its current range, Chan will continue to favour companies that produce strong dividends.
Meanwhile, he believes the weakening of the US dollar will help Asia. Although the US currency has depreciated significantly against the euro, the Asian currencies are stable against the dollar. This is helping Asia increase its global competitiveness, Chan said.
The strengthening euro has also helped the trend of outsourcing from Europe to Asia, he noted. China in particular has been a beneficiary of this trend.
In China, Chan anticipates continued growth in the longer term. However, he warned medium-term performance could be choppy.
'In the nearer term, there is an imminent risk of overheating in fixed asset investment,' he said. 'China is also fairly valued at the current level. Additionally, corporate governance continues to be an issue in the country.'
To overcome the corporate governance issue, Chan gains exposure to China by investing in companies based in other Asian countries that have long track records and successful business models in China.
While the impact of Sars should not be overlooked, Chan believes it is likely to be a short-term factor in the market, noting a slowdown in infection rates in Hong Kong and China in recent weeks.
Chan has not changed the portfolio structure as a result of the Sars outbreak and conceded it may impact short-term performance.
'We believe the market could rebound sharply and leave no time to add back our positions once the epidemic subsides,' he said.
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