BEN SURTEES, fund manager at Far Eastern Equities on Asia
Perhaps inevitably in the context of peaking global leading indicators, there is a lot of conflicting data emerging from Asia.
In terms of shipping container, air freight and passenger volumes, global trade appears to be growing at a healthy pace. Additionally, Q2 GDP figures from Malaysia, Singapore and Taiwan have been robust.
By contrast, Singapore’s non-oil domestic exports and technology companies globally are reporting a build-up of inventory suggesting weaker-than-anticipated end demand.
The fragility of the recovery in Europe and the US remains a thorn in the side for Asian investors, as much of Asia’s stock market recovery to date has been driven by companies reliant upon Western demand for their low value, commoditised products and services.
Significantly, the salient features of Asia’s re-emergence from the doldrums of the 1990s are still very much in place: high domestic savings rates, comparatively low urbanisation, supportive demographics and a rising standard of education and healthcare.
A new paradigm is underway; the move away from low wages, low inflation and suppressed currency towards higher wages, higher interest rates and appreciating currencies. This will, in the medium term, create a more consumption-based regional economy, which should be better placed to withstand the ebb and flow of Western economies.
More specifically, Chinese macroeconomic data points to a modestly slowing economy. However, to a large extent this is an intentional policy move after the dramatic fiscal stimulus programme that spared the country from the worst of the global financial crisis. In so doing, the authorities have aimed to remove some of the excesses in the property market and reduce overcapacity in areas such as cement and steel. We believe this does not equate to an early warning of a more prolonged slump.
The secular trends listed above still underscore good long-term prospects. Specifically, China’s stock market is one of the prime examples of an asset class that potentially represents good value.
Asian valuations remain a significant support. Further rises in earnings forecasts for the region’s leading constituents combined with a lethargic response from stock markets have created a more compelling valuation story for us. The P/E multiple for Asia ex Japan is now under 13x 2011 and is below long-term averages. A sharp pullback in the markets could be used as an opportunity to increase exposure given the potential longer-term secular opportunities that exist across the region.
Ben Surtees is manager of the Jupiter Asian Fund
