With China's economy steadily improving, Southeast Asian fund managers are weighting their portfolios accordingly
Fund managers have been focusing their Southeast Asian portfolios towards China and Singapore, according to the latest asset allocation research by Forsyth Partners.
Funds with overweight positions in China include GAM Star Asia (Euro Class), Baring Asia Growth and the HSBC GIF Asian Opportunities fund.
John Mytton, fund manager of the GAM Star Asia (Euro Class), said: 'Consumer prices in China, where industrial production and exports are growing strongly, rose for the first time in three and a half years in April. Further improvements in the economy will be fuelled by strong foreign direct investment that continues to increase.'
Khiem Do, fund manager of the Baring Asia Growth fund, recommends petroleum and chemical company Sinopec in China. This company may be upgraded by credit rating agency Standard & Poor's because of its decision to buy oil producer Sinopec National Star, which will increase its reserve base and help reduce its exposure to the volatile oil price cycle.
The Baring Asia Growth fund favours property developer Cheung Kong. The stock is set to benefit from the fall in US interest rates and has a number of new property developments in the pipeline in Singapore, Do said.
Mytton agreed that the cut in US interest rates will assist the major financial services and property stocks in Hong Kong and Singapore. The residential sector particularly should benefit as low mortgage costs, at 4.75%, are beginning to have an impact.
Funds with overweight positions in Singapore include Aberdeen International Asia Pacific fund, Invesco GT Newly Industrialised Countries fund and the GAM Star Asia (Euro Class).
However, Mytton warns against the outlook for Taiwan and Korea. He said: 'These countries are exposed to the softness of the US economy and to the problems of the global semiconductor industry. Taiwan's government has been intervening to support the currency and the local stock market.'
'The authorities are concerned about capital flight which would exacerbate Taiwan's economic problems, which include falling exports, falling industrial production and rising unemployment. The strong currency is not assisting the situation and needs to be devalued.'
Graham Muirhead, chief investment officer Asia at Deutsche Asset Management, agreed the Taiwan market is depressed, interest rates are low and profit margins in the technology sector do not look good.
Funds with underweight positions in Taiwan include the Deutsche Asian Trader Trust, Atlantis Asian Recovery fund, CGUPP Far Eastern Growth fund and the Fiduciary Asian (ex Japan) Equity fund.
Countries where the majority of fund managers had underweight shares include Malaysia and India. The Malaysian economy is slowing as companies are forced to reorganise their debts and banks are setting aside more money to cover bad loans.
Muirhead said: 'The Deutsche Asian Trader Trust is underweight in Malaysia because companies are failing to restructure and corporate governance is not improving.'
In India the economy is still weak. Both capital goods and product prices have decreased. Those with underweight positions in the country include BBL Invest Asian Growth and the Fiduciary Asian (ex Japan) Equity fund.
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