Despite fears about the Sars virus, Asian economies have been buoyant in the last two months, f...
Despite fears about the Sars virus, Asian economies have been buoyant in the last two months, fuelled by growing consumption in economies such as China and Thailand.
Michael Deakin, chief investment officer at Insight Investment, says: 'Even though the impact of Sars remains unclear, GDP growth within the region remains strong, particularly in China.'
In the short term, Deakin feels growth might be dampened by the effects of the Sars outbreak but is fairly confident these effects will be diluted and the long-term economic fundamentals remain robust. Asia's high growth rate is supported by long-term as well as short-term factors, according to Alistair Thompson, senior portfolio manager of Asia Pacific Ex Japan Equities at First State Investments
'While most regions are projected to experience an ageing population and a fall in working age individuals, Asia's demographic outlook is more positive with a rising working population,' he adds.
Moreover, household incomes are increasing because of industrial growth and falling birth rates.
Thompson says: 'Families are becoming smaller and more women are working so household incomes are increasing, which is stimulating consumption.'
However, Thompson adds Asians are avid savers and although the increase in income has resulted in a rise in credit in places like Malaysia, China and Thailand, savings have not reduced as a result.
Both Deakin and Thompson agree the region's low valuations are attractive to investors. Thompson says: 'Companies in the region have attractive dividend yields and their net debt to equity ratio is lower than US and European counterparts. Asian companies tend to be debt averse since the crisis in the mid 1990s.'
Thompson is avoiding any investment in Indonesia and the Philippines because of high political risks. He says Indonesia has to pay particular attention to its banking system if it wants to compete with countries like Thailand, which has repaid its IMF debt in advance.
The Indonesian government has nationalised banks that were doing badly and merged them to form Bank Mandiri but to investors this bank carries a premium risk.
Another sector Thompson does not favour is South Korean banks. He says: 'We are stockpickers but one area where the top-down approach prevails is when considering South Korean banks. We have no exposure to the sector because of the banks' reckless lending to companies. 'We are also staying away from the sector because of the possibility of a change in regime between North Korea and South Korea. If the two countries unite, South Korean banks will have to lend to the North.'
Deakin also thinks that South Korea has to deal with some geopolitical issues, believing that the recent transport workers strike had a negative impact.
'It had a negative effect on exports but it also gave investors the impression the new president is sympathetic to the left and so further strikes could follow,' he adds.
Promising growth rates.
Strong consumption and household income.
Low valuations available.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till