First State’s Susie Rippingall believes Hong Kong could experience an economic boom if interest rates remain low in the US.
The manager of the £158m Scottish Oriental Smaller Companies trust says although in general Asian central banks are raising interest rates, Hong Kong cannot because of its currency’s peg to the US dollar.
“Hong Kong is an interesting scenario. As we look to the US, the likelihood of a rate rise is being pushed back further to the end of next year,” she says.
“If that is the case, then we could see negative real interest rates in Hong Kong – similar to what happened in the first part of the 1990s. This could lead to rapid growth in the economy, and we have already seen the Government restricting loans on mid to high-priced properties to prevent a bubble.”
Rippingall is also a fan of South East Asian countries including Thailand, Malaysia and the Philippines.
“These countries have stable economic climates and attractive valuations. Even Thailand is relatively stable despite this year’s turbulence,” she says.
“A lot of South East Asia has held onto its manufacturing base as companies realise the cost of production is cheaper there than in China.”
In contrast, Rippingall is extremely bearish on India, having just 1.6% exposure, an 11% underweight to the benchmark. She holds just two Indian stocks: consumer products group Marico and motor oil producer Castrol India.
“I am very negative on India. I think the central bank is way behind the curve in tackling inflation, which is around 10%,” she says.
“Food prices are a big element of inflation and we are seeing it in processed goods, not just soft commodities. Inflation has become entrenched and the central bank should have been more aggressive in raising rates.
“The risk is that when an interest rate rise happens, it will be faster than expected which will cause investors to exit the market. The reversal in sentiment could be severe.”
Rippingall says Asian smaller companies have outperformed since markets rebounded in March 2009, though she expects returns to be in line with the market for the remainder of the year.
“However, for the last six months they have performed in line with the wider market and, unless there is a big sell off, we expect this to continue.
“The valuation gap has narrowed, so the risk/return profile is not as attractive as it was,” she adds.
