Although global growth appears to be slowing, the Asian growth story remains valid. Investors often ...
Although global growth appears to be slowing, the Asian growth story remains valid. Investors often question how Asia could withstand a US slowdown, or a deterioration in US demand for Asian goods, given the high export dependency of Asian economies.
We feel that Asia's domestic economy is becoming a stronger proponent of economic growth and the ties to the US economy are becoming weaker, with the Chinese consumer emerging as a source of intra-Asian growth instead.
Valuations in Asia look attractive with a combination of growth, yield and the potential for currency appreciation. There appears to be an increase in private equity deals thanks to higher growth potential, sustainable free cashflows and inefficient use of undergeared balance sheets. As for the contraction in global liquidity conditions, although on a tightening trend, monetary policy within Asia remains accommodative for now.
We believe Asia would fare better than other regions in an economic downturn. With the markets currently concerned by the US prime and sub-prime mortgage market, further risk reduction trades may ensue, meaning heightened risk aversion in the short term.
However, we do not believe that Asia should underperform, and view any ongoing technical corrections as a good opportunity to accumulate positions for long-term investors.
A thematic approach to investing is particularly relevant when considering Asia, especially the domestic consumption theme, thanks to rising disposable incomes. As a percentage of GDP, private consumption in China is at half the level of that in the US at around 35%, with great potential to increase.
One country that is underappreciated by investors considering Asia is Singapore. Although small as a percentage of most Asian indices, many Singaporean companies have strong links to the Chinese growth story.
High corporate governance practices mean effective capital management and yield opportunities for investors. The government has also introduced a series of growth initiatives for the tourism, pharmaceutical and financial services industries.
In 2005, the government lifted a 40-year ban on casinos, allowing the development of two integrated casino resorts, which will attract billions of dollars of investment and tourists to the country.
Growth from all of these sectors means that in the event of a US slowdown, such countries such should be cushioned from the blow.