5 Hot Topics Asia
16 July 2009Asia continues to grow apace. There are many signs that it will recover quicker than the rest of the world from the Global Financial Crisis – and that this growth will be sustainable.
For that reason we believe that global equity portfolios should, in the long term, be overweight towards Asia. The following are five “hot reasons” supporting our view:
· Higher GDP growth – This year, Asia has held up relatively well despite the economic “heart attack” being experienced by much of the developed world. We expect economic growth of 4.6% for 2010 (for the countries composing the S&P Asian 50, which is the Asian Tigers, Hong Kong, Taiwan, South Korea and Singapore) compared with Australia of 2.6% (based on Bank of America Merrill Lynch projections).
· Export-lead growth - After being hard-hit by the collapse in global trade and finance last September, Asia’s exports are recovering. South Korea and Taiwan recorded better-than expected export figures in June. This is particularly significant as these countries’ exports are in an upstream position in the global supply chain, and as such are a significant portent that manufacturing globally is improving.
· Strong banking system – Asia’s liquid, relatively well-capitalised banking systems are a positive for long-term growth. Although there may not be much short-term scope for corporate credit growth, there is an emerging theme of credit expansion for households and therefore consumption. Part of this strength is due to Asia taking its medicine and restructuring its financial system in the wake of the 1998 crisis.
· Stock market sectors – The S&P Asian 50 main industrial sectors are Financials, Information Technology and export-lead manufacturing industries. Excluding financials it is difficult to get exposure to quality companies in these two other sectors in Australia.
· The China story – We could not mention Asia without mentioning China. We expect GDP growth to continue, driven by a recovery of exports, revived private investment and accelerating investment by local governments. China will remain one of the fastest growing economies in the world, but at a lower rate compared with the past five years. Even so, these rates of growth will continue to provide support for Asian and Australian economies.
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