Although traditionally seen as a growth play, asia is beginning to pay out dividends, according to prudential's Chief investment officer Nick Scott
No one has ever bought Asian stocks for any other reasons than pure growth but now they are starting to pay out dividends, according to Nick Scott, chief investment officer, regional mutual funds, at Prudential Asset Management.
'I genuinely believe Asia is a good place to make absolute returns,' he said.
The massive rise in foreign ownership of Asian equities has been the most important development in Asia in recent years, Scott said. He gave the example of Korea which has seen a rise in foreign ownership from around 5% in 1993 to above 30% by the end of 2001. Taiwan has also risen, although not as dramatically, moving from under 5% in 1993 to just over 12% by 2001.
The rise of institutional ownership has pressurised Asian management to be more disciplined in capital deployment, Scott added.
The consumer story continues to be a strong play on the region, Scott said, with private consumption as a percentage of GDP moving up to 79.8% in the Philippines, 62% in Taiwan, 51.2% for Korea and 56.1% for Hong Kong. Asia ex-Japan equities are trading on high single to double digit prospective price to earnings ratios and the current stability is allowing interest rates to stay low, boosting domestic consumption, Scott said.
'The current account surpluses in most of the countries gives great scope on rates and fiscal policy. It is a much healthier place since the crisis,' he added. Other pluses for the region include an attractive risk premium and lower gearing since the Asian crisis.
In a global context the total Asian weighting of 13.2% in the MSCI World index is unrepresentative of the region, Scott said, predicting that on the back of the positive environment for Asian equities it will grow quickly over the next few years.
The main threat to Asia is if global demand falls off. As a result of this threat, Scott said it is prudent to seek opportunities in those companies and regions with strong valuations and balance sheet support.
China is a strong play within Asia as it gains a larger share of global manufacturing, increased foreign direct investment (FDI) and growing market shares of export business. In 1990 Southeast Asia's share of global manufacturing amounted to 2%, North Asia 3%, while China had 2%. By 2001 Both Southeast and North Asia had maintained their percentage, while China had gained, taking up 5% globally.
China also shows growth in foreign direct investment, moving from a 2% share in 1990 to 6% by 2001, according to Prudential, while Southeast Asia has seen a drop, moving down from a 6% share in 1990 to 2% in 2001. 'Chinese reform, growth and regional influence are unlikely to be derailed,' Scott said.
The Korean story is also still a good one, Scott said, noting it remains attractively priced compared to other regions in the Far East and the group has moved to a very underweight position in Taiwan.
Scott also noted the group has exposure to Australia as he believes it is one of the strongest economies in the world at the moment.
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