Mid-term prospects robust as China actions stem inflationary pressures

A mid-cycle correction, which we anticipated for Q2 2010, may have already started and there is good reason for us to advise a more cautious approach within the Pacific Basin.

First, investor sentiment surveys indicate excessive optimism; although we believe the outlook for Asian equities is positive relative to the rest of the world, markets have acted accordingly. Relative exposure to Asian equities is high by historic measures and institutional cash levels are low, with sector weightings skewed towards higher-beta industries. This all would suggest there is room for disappointments which could force further sell-offs. The most likely catalyst for these disappointments are the rapidly increasing inflationary pressures, particularly in India and China. Tighte...