Market Outlook 2008 - Asia ex Japan - Ian Beattie


Asia Pacific ex Japan 2008 outlook by Ian Beattie, investment manager for the New Star Asian Opportunities Fund

“Asian stockmarkets considerably outperformed in 2007 as investors sought to participate in the region’s high growth rates. The region was even viewed as a ‘safer haven’ amid the sub-prime crisis in the US, although the protracted nature of the sub-prime fallout means investors in Asia need to sharpen their geographical focus for 2008.

“Investors are likely to be better served by the US interest rate sensitive markets of China, Hong Kong and South East Asia. These should benefit from further US monetary easing in response to the sub-prime crisis and weaker economic trends because their exchange rate regimes import this looser monetary policy.

“By contrast, any softening in US demand will be detrimental to countries in North East Asia such as Taiwan and South Korea. Growth in these countries is more closely tied to the shifting fortunes of US consumers and global economic growth in general.

“Of the sectors with potential, financial stocks remain attractive. Few Asian banks own much sub-prime debt and even fewer use these types of securities to generate growth. As a result, their business models remain intact and unlikely to be downgraded. Property appears reasonable value in relation to wages while the development of urban centres should provide interesting opportunities as demand for prime property, both residential and commercial, grows.

“Among countries, China remains appealing. The growth of consumer banking from small beginnings, rising wages and the wealth effect of rising asset prices create a potent mixture. Attention will also be turned on the country as it hosts the 2008 Olympics. It is even possible that a full blown bubble may develop emanating from China as the country’s liquidity stockpile and appreciating currency lead asset prices higher.

India’s economy and stockmarket is likely to benefit from the country’s proactive and successful recent monetary policies. Falling market interest rates should support industrial production and investment. The country also has a strong domestic consumption sector. The threats to this benign environment would come from political upheaval or a serious deterioration in US economic conditions.

“During 2008 it is possible that certain Asian markets will be viewed as a haven for investors looking to escape the nervous conditions affecting western economies. This is because Asian countries have mostly become creditor nations not debtors. Asia is not suffering from sub-prime issues and does not have severe debt problems. As such global strategists are increasingly seeing the region as lower risk.”

Past performance is not necessarily a guide to future performance. The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice. The value of investments and any income from them may fall as well as rise and may also increase or decrease as a result of changes in exchange rates between currencies. Investors may not get back the amount originally invested.