Hong Kong, 6 July 2011 – Asia-Pacific economies remain relatively attractive, but investors should be mindful of regional inflationary pressures, tighter monetary policy and European debt woes which remain on the horizon, said Mr. John Ford, Asia Pacific Chief Investment Officer for Fidelity International.
Mr. Ford said he was optimistic about the outlook for Asian equity markets in the second half of 2011 given the strong, broad-based economic growth recorded by many economies in 2010 as well as the solid company fundamentals and relatively robust consumption and income growth. However, the region still faces headwinds on several fronts with inflation and a slowdown in growth due to monetary tightening being the leading concerns.
“The strong rise in input costs, higher commodity and energy prices, plus strong consumption growth and structural changes of key economies within the region will see policy makers ensuring that inflationary pressures don’t supersede growth prospects,” Mr. Ford said.
“Investors also need to be wary of some external factors, such as a worsening of the sovereign debt crisis in Europe. Elsewhere, an oil shock in the Middle East cannot be fully discounted due to the continuing political unrest in Libya and Syria,” he said.
These external factors along with concerns over U.S. growth and the situation in Japan have led to some investors being fairly cautious about Asia, he said. Market turnover in the year to date has been quite low suggesting a lack of conviction on both the upside and downside. The volatility and risk aversion has also impacted the IPO market where debut performances have been lacklustre.
China Still Resilient
Mr. Ford said the slowdown in Chinese growth will likely have an impact on many Asian firms, which increasingly depend on Chinese consumption to drive growth.
On the upside, resilient earnings growth in China has made valuations more appealing, he said. China remains very attractive with a price earnings ratio at 11 times and earnings per share growth of 20%.
“Relatively speaking, the key issue for Asian markets over the next six months is China's monetary policy. If authorities conclude the tightening cycle, Asian stock markets are likely to recover.”
Mr. Ford said he was pleased with the policies Chinese authorities have put in place. “The Chinese central bank has the suitable tools and balance sheet strength to implement appropriate measures – monetary and fiscal,” he said.
Korea and Taiwan Benefit from Inflows
Within the region, South Korea and Taiwan have been prime beneficiaries of inflows, Mr. Ford said. In June, Taiwan was an outperformer in terms of fund flows as investor conviction rose due to improved cross-Strait relations. South Korea will continue to enjoy a dynamic economy as one of the strongest markets that has been driving world growth.
“South Korea is an interesting and attractive market at the moment,” said Mr. Ford. “South Korean companies will post record-high earnings again this year following 2010. The size of these earnings will reach close to 90 trillion won – almost double the average earnings for non-financial companies between 2004 and 2007.”
“Besides the size of earnings, the quality has improved. South Korean auto companies continue to post a utilization rate of over 100%, while Japanese automakers saw a sharp decrease in utilization from over 85% to 35% after the earthquake. U.S. auto makers also experienced decreased utilization recently,” he said.
Accordingly, the market share of South Korean auto companies in the U.S. reached over 10% and an upward trend is expected to continue.
U.S. Impact on Asia
Mr. Ford said he did not expect the U.S. to introduce a third round of quantitative easing, which ended in June. He said while it was important to be mindful of investor confidence, risk aversion and risk appetite, stock selection remained the primary building blocks of Fidelity’s investment policy.
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About Fidelity International
Fidelity International provides investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 5,000 staff in 23 countries and manages or administers client assets of US$300.5 billion as at 31 December 2010. Fidelity has over 7 million customer holdings and manages more than 750 equity, fixed income, property and asset allocation funds. Fidelity’s fund managers receive research from one of the largest proprietary research teams, covering 99% of the world’s largest listed companies. Fidelity International is an independent company which is privately owned.
Tel: 852 2629 2800
Tel: 852 2629 2800