The booming Asian region has consistently delivered outstanding results for investors in the recent past.
But with an expected US and UK slowdown in 2008, can the burgeoning economies such as China and India continue their rapid growth? And what can be made of the other Asian giant Japan?
Legg Mason Asia Pacific fund managers Ray Prasad and Curtis Butler believe the fundamentals in the Asian (ex-Japan) region remain sound.
The managers welcomed the correction seen in August and November, saying the “healthy pauses” offer second chances to new investors seeking exposure to the asset class.
“Our portfolios continue to be tilted in favour of domestic consumption and infrastructure themes over exporters, given the positive effect of wage growth and surpluses on domestic demand, in contrast to the pressures on Asia’s exporters coming from strengthening currencies and slowing growth in developed economies,” the managers say.
“We also tend to prefer the emerging markets within Asia, as they tend to offer more attractive growth/value combinations.
“We are currently overweight India and Korea, two of the largest emerging markets in the region, and underweight China, on valuation grounds.”
Neptune fund manager Shelley Kuhn says the firm still believes China represents the most compelling growth story in Asia today.
“We remain positive on Chinese equities going into 2008, despite another strong performance in 2007,” she says. “This is being driven largely by investment but is being increasingly supported by strong consumption growth.”
Kuhn is also bullish on Indian equities.
“From a top down perspective, we favour the consumer, industrial and financial sectors where the earnings outlook is very positive,” she says.
“As an economy driven almost entirely by domestic demand, India remains the most insulated Asian economy in the event of a US or global slowdown.”
As for Japan, opinion is divided on the country’s 2008 outlook.
Investec Asset Management strategist Max King says Japan could be a surprise packet next year, with “much more attractive” valuations and prospects than a year ago.
“Economic growth is steady, corporate profitability is improving, valuations are the lowest for decades and dividend yields are above government bond yields,” he says.
“With investors throwing in the towel, but the Yen rallying, the bulls may prove to have been early rather than wrong.”
But Neptune manager Chris Taylor is less optimistic.
“The domestic side of the economy continues to slowdown as employment and wages both decline which has already undermined expenditure upon vehicles, houses and consumer goods,” he says.
“As a result, interest from both overseas and local investors is likely to remain muted as most other markets provide a better combination of earnings growth and return upon equity, compared to what is a relatively expensive market.
“We expect 2008 to be similar to 2006 and 2007, proving to be another difficult year for the market."
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