Fund manager's comment/Margaret Gadow
Having performed dismally in 2000 on the back of the persistent technology sell-off and investors' ongoing aversion to risk, Asian equities performed in line with their major global counterparts until July 2001, supported by interest rate cuts in the US and most countries in the region.
However, since the beginning of August, Asian equities as a group have become the best performing markets, as financial sector consolidation and economic reforms have boosted banks, insurers and property-related stocks, especially in emerging Asian countries such as Thailand, Korea and Taiwan.
Another positive factor is that companies in many sectors, especially technology, have begun to cut production capacity. This is a painful admission of defeat, which is the first step to ensuring healthier growth in the longer term.
In this difficult environment, the most important strategy is to identify winners and losers correctly. While weak and inefficient companies will be eliminated as competition intensifies, companies that are capable of offering lower prices by improving efficiency will survive difficult times and ultimately emerge as winners. As most stocks have taken a severe beating recently, regardless of their fundamentals, there are ample opportunities to buy future winners at a low price.
Within the technology sector, many leading companies in the US, Europe and Japan have announced a reduction in production capacity in such areas as DRAM and flash memories. This should benefit many Asian technology companies such as Taiwan Semiconductor Manufacturing and Korea's Samsung Electronics by easing price competition and boosting orders.
In addition, in order to save costs, Western technology companies are increasingly relying on outsourcing electronic parts and other products from their Asian counterparts. Weak Asian currencies will also help boost orders from foreign companies. As a result, we are optimistic the turning point for their share prices is close, if it has not been reached already.
Another area where share prices have been battered indiscriminately is the resources sector. Commodity prices such as oil, copper and platinum fell sharply in June and July, depressing even the most promising of resources stocks.
However, capacity is also falling in these industries: Opec decided to cut oil production from September, while aluminium capacity has been curtailed with many smelters closed in the western states of the US due to a persistent power shortage.
All these factors should pave the way for higher commodity prices and a brighter future for Asian resources companies such as Australia's BHP Billiton and Chinese oil company CNOOC, which are likely to emerge as winners.
• Investors' aversion to risk has faded.
• Share prices are generally at low level.
• Global tech firms have reduced production.
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