As the world's stock markets enjoy some respite from the relentless down-draught of the last three y...
As the world's stock markets enjoy some respite from the relentless down-draught of the last three years, conditions exist in which the markets of Asia have been able to flourish. Sentiment is strong, earnings are stabilising and therefore Asia can thrive.
Things have recovered sufficiently that the summer lull now looks to be in danger and some of the hype has returned to smaller markets where investors are starting to dream once more of substantial returns from emerging markets. Is now at last the start of something big in China?
The promise is there for all to see; the market is huge. Some 1.4 billion people are desperate to consume and increasingly have the means to achieve their wishes. The government is willing. There is a commitment to reform even though it will certainly be two steps forward, followed by one step back, with some pretty major policy gaffes by international standards. And by the time the corruption is expunged from the economy, substantial gains will have been made already by less risk-averse investor willing to take the plunge.
The outlook is so positive for China that commentators are starting to question how long it can be before the renminbi needs to be re-pegged upwards against the dollar.
It seems, however, that there is little incentive for the authorities to act. They will argue that competition from the World Trade Organisation will cost jobs; China needs robust export growth because it has started from a very low base; and its demand for high-value-added goods imported from overseas will balance things out. But the fact is that China gets a massive boost as the dollar weakens, making it even more competitive with non-dollar countries than before.
Sars seems to have disappeared from the headlines. Most countries have been declared free of the disease and travel in the region is slowly resuming. Investors have started to look past the short-term effects that the disease will have had on tourism and business travel and project a recovery in this sector for 2004.
There is of course the chance that the disease will return. The weather will be more conducive to spreading the virus later in the year and so we may not have seen the end of it yet, even if the worst forecasts seem to have been well wide of the mark.
The disease cut a relatively modest 1.2% off industrial production growth. This was above consensus. Certain sectors were hit much harder, but should in turn bounce back more sharply. Local governments were told to increase investment spending, so fixed-asset investment should remain strong.
The recent rally has inspired many investors to revisit their asset allocation, committing more to the region in general and to China in particular. Encouragingly, many believe that with valuations in the West still above long-term averages, Asia offers attractive valuations. This combined with an undeniably positive growth story has meant that most investors have added to their holdings in the region.
Currency peg with the dollar to hold.
Sars seems to be contained.
Chinese exports are surging.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
Senior Managers Regime
Interest rate outlook unchaged
FCA made demands last week