Investors continue to be concerned about the weak global economy, a view that naturally tarnishes ...
Investors continue to be concerned about the weak global economy, a view that naturally tarnishes their appetite for Asia as a region heavily reliant on global demand.
Like many investors, I am not a rampant bull but do believe there are a number of positives that could help spur Asian equities forward in the coming months.
For one, there is a lot of liquidity in the markets. High cash levels are floating around waiting to be injected into the markets and such moves should benefit Asia. You have to remember that Asia markets are relatively small ' Hong Kong, for example, has a market cap only marginally higher than that of Microsoft.
Falling interest rates have meant that savers are suffering dwindling rates of return on deposit accounts. The low rates could persuade investors to dabble in the stock markets in the hunt for better returns on their savings.
Asian companies are also better placed than they were during the last major economic crisis in the late 1990s.
Today, Asian corporate and national balance sheets are more defensive and not as highly leveraged. Stocks also look cheap relative to the developed markets because they have not recovered as much as those in the US or the UK.
But Asia is still an emerging market and, while there is cause for optimism, there are plenty of negatives, that could hinder the recovery of its equity markets.
The performance of Japan is key. It is the region's largest economy and its failure to recover would have a negative impact on the other Asian economies.
Japan has its problems and its banking system is still in a mess. Standard & Poor's published a report in October, Global Financial Systems Stress 2001, that described financial systems in Japan, and Thailand for that matter, as suffering from persistent weakness and inability to recover from the problems from the 1990s.
However, there are indications that Japan is on a road, albeit gradual, to recovery. There are signs in some quarters of significant corporate restructuring.
Companies are also beginning to show a greater interest in shareholder value. Many are adopting share option schemes in a bid to increase staff loyalty and it is hoped that if staff have a financial incentive, they will boost production.
The Philippines and Indonesia continue to be plagued by political problems, while there are still concerns about corporate governance. Many companies are family-owned businesses and accountability and visibility of balance sheets is often difficult to come by.
Tourism in Asia is also coming under pressure. People just do not want to travel and for areas such as the Great Barrier Reef, this is a severe problem.
Many analysts are optimistic and reckon the US is on course for a recovery early next year but I am not so sure. The US was heading for a recession long before the September attacks and their long-term impact may have been underestimated.
I think earnings will continue to disappoint both in the US and Asia during the next few months and if the US recovery fails to materialise, the Asian economies will go nowhere.
Valuations currently cheap.
Asian companies have cut borrowings.
High levels of liquidity.
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