Long-term allocation to Asia won't change

Recent political events in Asia, despite causing some short term volatility, will not change the course of the long-term economic trend or investment environment, according to Barings Asset Management.

Korea, Thailand and Taiwan have all experienced some political instability over recent months. However, according to Barings the recent coup in Thailand, the diplomatic crisis in North Korea and large scale protests in Taiwan do not represent a common theme of political instability which threatens to impact the strength of Asian markets.

Khiem Do, Head of Asian Multi-Asset at Barings, said: �Obviously the markets didnt react well when North Korea announced the nuclear test. The market fell 2.5 per cent and the Korean Won weakened by 1.5 per cent. The sentiment on the Korean stock market throughout the whole of this year has been a little weak. However we believe that, at some stage, the market will present so much value that it will provide good opportunities for those who want to take a long term view to increase their holdings in Korea.

�In the case of Thailand, political uncertainty has been brewing for quite a while and we think that it was only a matter of time before there was a change. The demonstrations in Taiwan have been taking place for the past few months yet the market is withstanding this volatility.�

The important question to ask from an investment perspective is: Have these isolated events really impacted Asian markets? The answer is that Asian markets have actually done quite well over the past few months and in the year to date they have outperformed world markets once again. The markets are still functioning.

Looking to Japan, Barings is confident that the new Japanese Prime Minister will improve relations between Japan and China as the importance of China in trade terms continues to grow.

Khiem Do, explained: �Mr Abe has been proactive in terms of trying to improve the relationship, not just between Japan and China, but also trying to be more active, for instance, in voicing Japans protest against the North Korean missile tests. Mr Abe is playing a bigger role in terms of Japans role in the growth of Asian markets as he knows that, as Asia becomes stronger and stronger, Japan cannot be left behind.�

Barings is still very positive on Asia from a global asset allocation viewpoint because the region still has superior economic growth which has been translating into good earnings growth.

Valuations are still reasonably cheap � trading on 12 times price to earnings ratio, based on 2007 earnings and liquidity is strong.

Khiem Do said: �We are currently witnessing one of the largest IPOs of a Chinese bank in Hong Kong, The Industrial & Commercial Bank of China, and its already nine times over-subscribed. Interest in Asia is still strong because of the growth, valuation and liquidity viewpoint. None of the fundamental factors that we look at have made us revise our positive view on Asia from a global asset allocation perspective.�