Asian markets offer ripe pickings for investors ahead of stock market revival, it is claimed

News - Trusts

Written by Ray Clancy

Wednesday, 04 August 2010 08:21

Recent market declines in Asia and misplaced concerns over possible Chinese bubbles are creating some interesting stock level opportunities for investors, it is claimed.

The region is likely to escape the worst of the impact of the Eurozone crisis and there is plenty scope to absorb Chinese wage inflation, according to Andrew Beal, portfolio manager at Henderson TR Pacific Investment Trust.

Investors should consider the region during the summer to build exposure ahead of market recoveries which he predicts will return 10 to 20% by the end of 2010.

He believes that Asia’s economic momentum remains very strong. At the start of the year, the greatest fear was that the region’s economies were growing too fast and risked higher inflation. Slower growth in Europe and the US may actually help alleviate these fears. There is limited risk that slower Western economies will derail Asia.

‘Depending on the country in question, Europe receives approximately 10 to 20% of Asian exports resulting in 5 to 10% of Asian GDP exposed to Europe, thus even in a very negative scenario we would see, at most, a couple of percentage points knocked off Asian GDP growth,’ he said.

The rebalancing of Asian economies towards domestic consumers continues to gather momentum. Wages in China have been increasing rapidly in recent months, he points out. Beal argues that this is part of government policy designed to put more money in workers’ pockets and to encourage a move within the manufacturing industry towards the lower cost and less developed Western provinces.

He also believes that there will be more low end manufacturing moving to Vietnam, Indonesia and India but the chances of these economies taking China’s place in higher end manufacturing is low. ‘The infrastructure and skills just do not exist in these countries to allow them to take significant share from China. In the industries where China has a sustainable advantage, Western companies and consumers are just going to have to absorb these additional wage costs,’ Beal explained.

Beal notes that the policy of allowing higher wages in China is possible at the moment precisely because the economies of the West are so weak. ‘Slow growth in Europe and the US keeps commodity prices under control and prevents higher wages in China leading to a build up of inflationary pressure,’ he added.

He is also dismissive of fears that bubble conditions exist in China. ‘Market concerns about bubbles in China are vastly over exaggerated and this misplaced market fear is creating a number of interesting stock plays. The presence of well capitalised liquid banks and predominantly debt free consumers has created a positive outlook for earnings across Asia. This is particularly true of China, Hong Kong and Taiwan, where we are finding more stocks to buy,’ Beal explained.

‘Despite the currently fragile sentiment towards markets, defensive behaviour is too late and investors now need to slowly average into these markets over the course of the next couple of months with a view to being fully invested by the end of the summer,’ he added.