In another gloomy year for global financial markets, the Far East ex-Japan region's stock markets ha...
In another gloomy year for global financial markets, the Far East ex-Japan region's stock markets have again proved to be one of the better places for investors to have had their money.
Indeed, some of the smaller Asian markets such as Thailand and Indonesia have produced excellent returns in 2002, and even the weaker markets such as Singapore and Hong Kong have fallen less than developed markets. This performance has been in spite of the problems affecting some smaller markets in the wake of the collapse of the Argentine currency and economy.
The main risk facing Far East ex-Japan stock markets is the danger of a US-led economic slowdown. Although the level of intra-regional trade is growing, most of the economies in the Far East ex-Japan region remain heavily dependent on healthy export markets. Nevertheless, short of an outright recession in the US that would have serious knock-on effects in Asia, the prospects for the region look attractive.
The Far East ex-Japan markets stand at an unjustified valuation discount to developed markets. The troubles at Enron and WorldCom have raised fears about the quality of US corporate earnings at a time when standards of corporate governance have been improving in the Far East ex-Japan region.
Levels of corporate debt have fallen sharply and the health of the banking sector has improved following action taken in the aftermath of the 1997/98 regional crisis.
Domestic consumption in the region is growing strongly, supporting growth and helping to make economies less dependent on exports.
The region continues to attract investment from overseas, including western and Japanese companies looking to outsource manufacturing and service functions to lower cost locations.
The level of domestic savings in the region is high and there is plenty of liquidity to support financial markets.
Most of the countries in the region are running current account surpluses, giving firm backing to currencies and helping keep interest rates low.
China's economy continues to grow strongly, acting as a stimulus for economic activity across the region.
Indeed, the success of China in acting as a low-cost manufacturing base is undermining the competitive position of other countries. This should act as a positive force, however, encouraging economies across the Far East ex-Japan region to develop into greater value-added industries.
The region offers the prospect of economic growth being sustained at a much higher rate than for the global economy as a whole. For example, consensus forecasts predict GDP will grow at a rate of 4% for the Far East ex-Japan region next year, compared with a rate of 2.8% for the world economy.
In the past, companies in the region have failed to translate this positive background into growth in profits. However, with Asian companies now more focused on delivering value for their shareholders, this is in the process of changing for the better.
Valuations are attractive.
Overseas investors' interest now returning.
Standards of corporate governance improving.
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