Fund managers remain unexcited about the Far East due to uncertainly over the direction of US intere...
Fund managers remain unexcited about the Far East due to uncertainly over the direction of US interest rates and a lack of conviction in the region's recovery.
Richard Urwin, head of strategic research at Gartmore says he is neutral to lukewarm on the Far East while Alistair Byrne, head of investment strategy at Scottish Equitable is neutral on these markets.
Byrne says: "The overall outlook for global markets is quite uncertain. There is a big question mark over the direction of the US economy. It appears to be slowing down but it is still early days and it can't be certain that a sharp hike in interest rates won't be required.
"Against that backdrop we have been sticking to quite a neutral investment strategy and one aspect of that is not wanting to take a big risk in emerging markets and the Far East."
Otherwise, Scottish Equitable sees a relatively healthy picture and is forecasting 6.9% growth in the region (excluding Japan) this year and 5.7% next year.
Byrne says: "The growth rates are back up to the pre-crisis growth levels, while at the same time inflation is not proving to be anything of a problem yet. An implication of this is that interest rates are likely to go up a bit."
Another positive, Byrne says, is that there is quite a sharp recovery in profits, which are bouncing back nicely after the crisis. Consensus suggests the growth in earnings will be around 35% this year.
Concerns that US interest rates will rise is, however, the reason Byrne is not more optimistic on the Far East. He says when selecting stocks, Scottish Equitable has biased itself toward companies least likely to be affected by an interest rate rise.
Gartmore is marginally positive on the Far East due to the apparent recovery in Japan, which will have knock on benefits for neighbouring economies and markets throughout Asia.
Urwin says: "Although there are concerns that the recovery in Japan will implode, the economic numbers coming out indicate that although not particularly robust, the recovery is entrenched.
"The upside potential would come if Japanese growth turned out to be much stronger than people expected and this had benefits for the rest of the region."
Urwin says he is not convinced by the argument that the Far East offers much faster economic growth over a sustained time horizon relative to the developed market.
He does not expect the Asian markets to deliver outstanding returns in the foreseeable future and that the potential returns depends very much on the asset allocation throughout the region.
He adds: "Some of the developing markets in the region like Indonesia, Malaysia, Philippines and Thailand are small markets but they have struggled over the past year and lack catalysts to deliver a meaningful turn around.
"It is a case of concentrating exposure in the larger countries and larger markets in the region, for example Hong Kong, Singapore and Taiwan."
Good stock selection is also vital, and takes precedence over country or sector allocation, he believes.
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