Schroders may reduce its weighting in Australia in the coming weeks as expectations of a recovery in...
Schroders may reduce its weighting in Australia in the coming weeks as expectations of a recovery in global growth mean more growth-orientated Pacific markets are likely to outperform in 2003.
On the sector as a whole, fund manager at the group Leong wah Kheong says: 'Despite being prone to concerns about a slowing global economy, the market seems to have factored in such fears and valuations are generally reasonable. We remain positive on the region.
'Share prices are already factoring in any possible future earnings downgrades, and domestic demand in many of the regional economies is robust. However, with the 60% market cap weighting of Australia in the region, it is a generally defensive market overall. This defensive bias tends to overshadow more growth sensitive markets within the Pacific region, such as Hong Kong. With our expectations of global recovery next year, more growth-orientated regions, such as emerging markets, appear to offer better opportunities in the short term.'
At fund management firms, overweight positions are being taken across the board in Pacific Rim equities as there is consensus that it is a region offering investors long-term growth prospects.
David Kiddie, chief investment officer at Rothschild Asset Management, says the group has an overweight position in Asia ex Japan and emerging markets. He says: 'Asian and Emerging Markets benefited from the firmer tone across developed markets as well as positive domestic developments. In Brazil, Luiz InÃ¡cio Lula da Silva won the presidential election and calmed market fears with promises that his government would control spending and co-operate with international creditors. Looking further ahead, we expect Asian and Emerging Markets to continue to outperform as investors reward the stronger growth prospects of these economies.'
JPMorgan Fleming Asset Management's global strategist Chris Tracey says recent market performance has indicated a weakening in equities in the region. 'In the Pacific region, Hong Kong's Hang Seng was lifted 1.0% by government measures to ease oversupply in the property sector, while Taiwan's TWSI was broadly unchanged. Otherwise, markets were weaker, led by a 0.8% fall for Singapore's Straits Times, followed by a 0.3% decline for Korea's KOSPI.'
Despite these short-term movements, Tracey is optimistic about prospects for the region. He says: 'The region remains well placed to outperform. Stock market valuations are compelling, with many world-class companies on a P/E multiple substantially lower than that of their US peers, while corporate balance sheets are also stronger, with the 1998 crisis having destroyed many of the more extravagantly leveraged firms.'
For First State's Angus Tulloch, valuations remain compelling and the long-term prospects for the region are very strong. Recent market moves, he says, have been led by liquidity- driven markets such as Indonesia and the Philippines, however, in the longer term it is fundamentals that drive share prices.
Much of the absolute return for the asset class remains dependent on the performance of the US in the remainder of the year and in 2003. Despite that the growth story in China remains intact and it and Hong Kong, a gateway to its giant neighbour, make up over 30% of the First State Asia Pacific fund.
Region to benefit from global growth upturn.
China offers long-term growth story.
Valuations remain attractive.
Australian market not a good bet for 2003.
Liquidity-driven markets are bad long-term plays.
Highly levergaed firms still exist in region.
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