Asia remains the strongest emerging market in an environment in which volatility is high and valuat...
Asia remains the strongest emerging market in an environment in which volatility is high and valuations change rapidly.
It is underpinned by low valuations, which mean stocks are not under the same downward pressure as those in Western markets, according to City of London Investment Management fund manager Michael Russell.
He says: 'Valuations are undemanding and underpinned by the expectation that full-year 2002 economic growth rates will surprise on the upside.'
Average share valuations are about 1.5 times book value and P/E ratios about 13 for the region as a whole, Russell adds, while an absence of currency pressures means central banks can concentrate on expansionary policies.
'Added to that, Asia's low-cost manufacturers are expected to benefit increasingly over the next few years from increased outsourcing by US producers,' he says.
Downside risks include a rising oil price and the fact further huge gains look unlikely, with returns becoming more modest.
Korea and Thailand have seen some selling because of poor global markets and profit-taking, but, according to Gerome Booth, head of research at Ashmore, China looks strong, with third-quarter growth at 8.1% year on year.
In Latin America, political issues have preoccupied the markets, Booth says, particularly in Brazil where markets have stabilised after worry about the election of left-wing presidential candidate Luiz InÃ¡cio da Silva.
Change in real GDP for Latin American economies will be negative this year, Russell says. However, it will turn positive next year. The negative figure is largely the result of troubles in Argentina and Venezuela, with Mexico, Chile, Brazil and Peru all posting growth so far in 2002.
Compared with an overweighting in emerging Far Eastern economies, Russell is negative on Latin America and is underweight the region simply because opportunities there are not as attractive.
Rob Brewis, director of BDT, says Russia is showing strength due to the resilience of oil prices and is proving interesting because of geopolitics. It is becoming important as a non-Opec oil producer in the eyes of the US and president Putin is growing as an ally.
'Within oil stocks there has been a trend for improving corporate governance,' says Brewis. 'This has cut out a concern that existed in the past. It is a combination of better oil prices and better valuations as a result of corporate governance.' Russell says Russia continues to outperform emerging Europe, buoyed by high oil prices. However, investment opportunities in other sectors are beginning to emerge, most notably in consumer stocks.
Russell says: 'The Russian economy is forecast to grow by almost 4% this year, with a similar performance in prospect in 2003. Latest figures show industrial output grew by 3.8% year on year in August.'
Also positive on Russia is SchroderSalomonSmithBarney's Geoffrey Dennis. He says: 'Our analysis suggests Russian equities are less dependent on oil prices than one might think. In our view Russia remains attractive near term as a safe haven.'
Asia is underpinned by low valuations.
Asian manufacturers set to produce for US.
Russia continues to outperform.
Asian returns are getting more modest.
Investors have taken profits in Asia.
Few opportunites in Latin America.
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