Asia is Still the Place to Be

03/02/2009 12:00 am EST


Andrew McHattie

Editor, Investment Trust Newsletter

Andrew McHattie, editor of the Investment Trust Newsletter, reports on a recent conference in which a leading fund manager said Asian stocks look cheap.

Asia has not been a great place to have your money. The average trust in the Asia Pacific (excluding Japan) sector has dropped by 30% over the last year, which is worse than the UK, Europe, the US, and Japan. After a year of underperformance that has seen the FTSE Asia-Pacific (ex-Japan) Index lag the FTSE All-World Index by around 7%, the region was ahead by around 2.5% over the last month.

It may be too early to herald a return to favor, but we do think the sector has probably adjusted for the over-optimism which (with hindsight) kept prices too high in the early part of the credit crisis.

At a recent roundtable presentation in London, [fund manager] Aberdeen's head in Asia, Hugh Young, noted that Asia is well placed to emerge from the credit crunch stronger rather than weaker. Although Asia's stock markets have been hurt more than most by the global economic crisis, the underlying story offers reasons for optimism, he argues.

What became obvious in 2008 was that Asia had not decoupled from the developed world as many had expected. Throughout 2008, economic growth-and growth forecasts-plummeted, and Asian stock markets fell much further than their Western counterparts.

Young said that Asian economies must now focus on the next stage of their evolution, in which domestic consumption and investment take over from external consumption and investment. While developed nations have consumed and borrowed too much, Asia over-saved, with the result that the region is now on sound footings compared with developed markets.

He added that near-term equity performance will depend on the severity of the economic shock. Fortunately, many companies are well positioned-with low levels of debt and healthy free cash flow-to withstand the slowdown before monetary and fiscal stimulus measures take effect. On the down side, many remain heavily reliant on exports to Europe and the US.

Although the Singaporean economy has slipped into recession, the country continues to be a major overweight, being home to solid companies operating across Asia. Aberdeen has been underweight mainland China for some time. With quality Chinese-listed companies managed for shareholders still thin on the ground, the team prefers Hong Kong-listed stocks.

Young concludes: "Company valuations are compelling. Of course, they may get cheaper still given the uncertainty surrounding the global economy, but with Asia set to emerge from the credit crunch stronger than ever, now is without doubt one of the most attractive times to invest in Asia Pacific equities that I have witnessed in over 25 years in fund management."

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