By Jean de Bolle, head of the Asian and global emerging markets team at Martin Currie Asia's eme...
By Jean de Bolle, head of the Asian and global emerging markets team at Martin Currie
Asia's emerging markets performed strongly at the end of 2001 and into 2002. Despite succumbing to losses recently ' contagion from the sharp falls in the US market and from investors' increased aversion to risk ' these markets have outperformed year to date.
In the six months to 31 July, the MSCI Asia emerging markets free index fell by 17.5%. That compares to a fall of 21.9% in the MSCI AC World index.
The cyclical argument for emerging markets is well rehearsed: in the early stage of recovery in the global economy, emerging markets outperform. What they lose on the way down, they gain on the way up. But where does that leave Asian emerging markets if recovery in the US is delayed ' or cancelled?
The factors that led us to overweight Asian emerging markets last year still hold good. As a house, we have been more cautious than consensus about the scale of the recovery in the US economy. So our strategy was never proactively cyclical.
This has been reflected, for example, in our underweight in Taiwan ' the Asian market most tied to global growth.
Instead, our case for Asia is based on structural change within its domestic economies. As places of domestic growth, we are favouring Thailand, Indonesia, Malaysia and, to a lesser extent, South Korea. The data confirming the case for these markets is overwhelming.
Car sales in Thailand, for instance, were up by 49% year-on-year in July. It is clear that something is happening. Asia has changed a great deal since the devaluation of the Thai baht in July 1997. Since then, there has been a massive repayment of debt by resurgent Asian economies. These economies are now net lenders to the rest of the world.
At the same time, current account surpluses have been accumulating. After the Asian crisis, investment fell and savings rose. Now these savings can support consumption.
In the past, Asian consumers have had little access to credit. But consumer lending by banks has begun to grow strongly. Meanwhile, at the corporate level, balance sheets are strong. All this indicates the beginning of a new credit cycle that will last for three to five years.
It is unsurprising then that we have been choosing stocks in the consumer discretionary and financials sectors. That includes stocks such as Hong Leong Bank in Malaysia and car leasing company Siam Panich Leasing in Thailand. Telecoms are another area supported by the buoyant consumer. Our favourite stock in this sector is PT Telkom in Indonesia.
The strong performance of Korea in 2001 ' it was up by 37.2% compared to a 16.5% fall in MSCI AC World index ' indicates a decoupling of Asia's emerging markets from the US and Europe. So, although currently under pressure from the sell-off in global equity markets, we remain positive on the outlook for Asia's emerging markets.
The Asian consumer is providing a new source of economic growth that should enable the region's economies to do well.
Far East benefits first from global recovery.
Some Asian economies are thriving.
Valuations are compelling.
US recovery may disappoint.
Asian exports woudl suffer.
Risk-averse may not return to Asian equities.
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