Investment opportunities in Asia Pacific region growing but inflation is one worry on the horizon, according to experts

Written by Ray Clancy

Thursday, 15 July 2010 10:33

A healthy structural position could help to cushion the impact of negative events in the future in the Asia Pacific region but inflation could potentially be an issue for concern, it is clamed.

There is a growing interest in longer term sustainable growth in Asia and the focus is shifting from macro themes to key emerging issues within the region, according to Fidelity International’s John Ford.

Reviewing the region at the middle point of the financial year, he says that future threats includes include high inflation with central banks in Australia, China and India having increased interest rates and policy makers are still closely monitoring inflation levels or matters like the sovereign debt problems that have recently emerged in some European nations.

He points out that investment opportunities owing to the changing consumer behaviour and rapid urbanisation are gaining in prominence. ‘We are seeing a structural change in how consumers in the region are behaving and this provides some interesting long term growth opportunities,’ said Ford, Asia Pacific chief investment officer for Fidelity International

‘Of note, the high ownership levels of some items, such as washing machines and mobile telephones, indicate that consumers in places such as China, India and parts of ASEAN have already begun to move towards Western levels of consumption. In other areas, the ownership of cars, for example, there is still a long way to go before China and India approach levels of ownership in countries such as the US. Consequently, the picture is not simple, and the investment case related to personal consumption focuses on both the purchase of services as well as manufactured goods,’ he added.

Ford also commented on changes in how to evaluate investment opportunities. ‘Growth within the region is normalising and, hence, the evaluation of where opportunities lie and who the best performers are should now move to the strategic positioning of companies and the quality of their earnings. The companies that are able to recognise and understand the region's key emerging themes will find lots of opportunities for growth if they are able to react and respond quickly,’ he said.

Looking specifically at individual markets, Ford points out that Australia is benefiting from decreasing unemployment rates and increasing investor confidence. ‘In Australia, the impact of recent interest rate increases has been overestimated and tax cuts have had a positive effect on consumer spending. Housing prices remain strong and consumer confidence is high,’ he explained.

In general, while Ford is cautiously optimistic towards India, he has also identified certain sectors with continuous growth momentum. ‘Television and newspapers companies have seen strong growth in advertising revenue and valuations in both consumer staples and the discretionary space have touched new highs. Discretionary stocks offer better growth prospects, due to the structural drivers of these stocks and in contrast to the defensive nature of staples,’ Ford said.

‘Very low corporate IT spending in 2009 is expected to improve as US corporate cash flows gain strength. Leading indicators also support the view that there is a good chance that corporate spending will pick up in the second half of the year. We are also seeing a rise in consumer spending in the Chinese IT sector. Increasing advertising on the Internet, growing prosperity and growing use of social networking and Internet games are expected to boost IT companies' earnings,’ he added.

With regard to the financial sector, Ford said that due to sharp declines earlier this year, a number of financial companies are now attractively priced in South Korea, Australia and China. ‘Chinese banks and real estate securities have been among the worst performers in the region and loan expansion is expected to slow in 2011. As a result, some banks and financial companies in South Korea, Australia and China are now priced attractively, opening up new opportunities for investors.’