Western markets being eclipsed by emerging Asian markets as IMF upgrades its outlook for the region

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Written by Ray Clancy

Wednesday, 01 December 2010 10:36

Western and developed market companies still have a great deal to offer investors but their years of largely unchallenged dominance are over as Asian companies are now among the world’s largest, it is claimed.

Asian companies and their recognition of shareholder interests is stronger than it has ever been and rising dividend yields reflect the underlying strength of these companies and their willingness to use their cash flows positively, according to Tim Dickson, Asian equity fund manager at Invesco Perpetual.

He points out that Western economies are constrained by debt, financial sectors that remain in need of balance sheet repair and by aging populations. ‘Governments and households need to repay the debts built up over recent years and muted growth is the highest probability outcome. These issues do not apply to Asian economies. Governments are solvent, banks are well capitalised and households have high levels of savings, which are increasingly being deployed into domestic consumption as wages and prosperity levels rise,’ he said.

‘In my view, the risks for long term investors in equity markets now lie as much in Western and developed markets as they do in Asia. It also looks like a fairly safe bet that in the near term, the contribution of Asian economies to global growth will continue to rise as rates of expansion comfortably outperform the West,’ he explained.

He believes that investors should take some time to consider just where the real risks to growth, to corporate performance and to equity markets really are today. ‘In my view, Asia’s fundamental strengths underline the rationale for investors having significant exposure to this region. Breaking away from the traditional biases towards home markets and developed economies may not be easy. However, if Asia is contributing the lion’s share of world growth, which is being translated in profits, then I believe that there is every chance this will be reflected in growing amounts of long term investment inflows into Asian markets,’ he added.

The International Monetary Fund has upped its GDP growth projection for Asia in 2010 to 8% in its latest regional economic outlook, a 1% rise from its previous report. It says growth in the first half of 2010 was ‘well above trend’ in almost all regional economies.

In 2011 the IMF forecasts growth in Asia will moderate to 7%, while for emerging Asia it predicts growth of 9.5% in 2010 and 8% in 2011. China, India and Indonesia are set to grow rapidly and ‘lead the Asian recovery’, says the report.

In China, the IMF projects GDP growth of 10.5% in 2010, slowing to about 9.5% in 2011. Meanwhile, Indian GDP growth is expected to reach about 9.75% in 2010, before moderating slightly to 8.5% in 2011.

‘The short term baseline outlook for Asia remains positive, with growth expected to settle at more sustainable, but still high, levels,’ says the report.