Recent market weakness has exposed pockets of excellent value in Pacific Basin equities, according t...
Recent market weakness has exposed pockets of excellent value in Pacific Basin equities, according to Elizabeth Soon, head of Pacific Basin equities at Standard Life Investments.
Soon said that exporting remains a key area of strength within the region and a general pick up in global economic activity will continue to drive this forward.
Asia will also be buoyed by the continuing trend in outsourcing to low cost production areas, which is bringing a steady flow of investment to the region, she added.
These trends, Soon believes, along with attractive valuations, should eventually persuade investors back into the markets.
Soon said: 'Asia has been enjoying a strong recovery in exports over the summer months, providing a boost to the region's economies. This has been most pronounced in Korea and China where export growth is running at an annualised rate of around 20%.
'We expect export growth to continue as the global economic recovery takes hold, with Korean and Taiwanese technology companies to benefit most if semiconductor demand holds up. Meanwhile, China is continuing to gain from its position as the low-cost production site of choice for manufacturers looking to outsource their non-core activities.'
Asian currencies have been appreciating against the dollar, in line with the euro and the yen. The immediate impact of this will be on the profitability of corporations which have chosen not to hedge their dollar exposure. 'In time, the weakness of the dollar may begin to cause problems for those exporters who are selling goods in the US or pricing products in US dollars and eventually this will flow through to Asian trade balances,' Soon said.'The trend of Western organisations outsourcing production to Asia should reinforce economic growth in the region for some time yet. The growth of outsourcing in Asia is driven by the realisation that it is inefficient for companies to retain their non-core operations.
'Most exciting, the phenomenon of outsourcing has been intensifying and the volume and value of activities that are being outsourced has grown rapidly. For instance in the electronics industry, the concept of a virtual manufacturer is developing, whereby the 'manufacturer' retains the marketing function but other activities are outsourced ' not only production but also R&D, design and distribution. This presents tremendous opportunities for service providers in the region.'
Standard Life anticipates the strengthening recovery in overseas trade should feed through to boost domestic demand as the cycle picks up. 'In addition to a cyclical upturn, in the developing countries within Asia such as Korea, Taiwan and Thailand, we are witnessing a secular rise in domestic consumption,' Soon said. 'This trend has been emerging over the past 10 years and has accelerated in the aftermath of the Asian financial crisis.'
Standard Life's strategy is to overweight Korea within the Pacific Basin as it is the clearest beneficiary of both the growth in domestic consumption and the strength in export markets and should profit from a pick up in the global economy.
Soon said: 'Chinese exports have also been picking up strongly and are driving the economy there, but it is difficult to gain exposure to this trend through listed Chinese companies. However, we are Heavy in Hong Kong, which is benefiting from its position as the key service provider to the mainland.'
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