Fidelity International’s John Ford shares his 2010 mid-year review and outlook for Asia Pacific
- Healthy structural position could help to cushion the impact of negative events in the future
- Growing interest in longer-term, sustainable growth in Asia
- Focus is shifting from macro themes to key emerging issues within the region
- Inflation could potentially be an issue and cause for concern
Hong Kong, 13 July 2010 - The Asia Pacific region has very much improved its structural position over the past decade, supporting the belief that the region would be better able to withstand the impact of negative events that might occur. This includes threats of high inflation or matters like the sovereign debt problems that have recently emerged in some European nations, said today Mr. John Ford, Asia Pacific Chief Investment Officer for Fidelity International.
“Although the region is still impacted by global, macro-economic issues - especially from an export perspective - key opportunities and concerns within the region itself are starting to gain more attention and are becoming a bigger part of the conversation,” he said.
“In addition, there is growing interest in issues of long-term nature as well as concerns about sustainable growth in Asia Pacific, outweighing shorter-term matters as was the case before. Issues such as investment opportunities owing to the changing consumer behaviour and rapid urbanization are gaining in prominence and are increasingly becoming the focus.”
Mr. Ford also observed that inflation is becoming a key issue for some countries and the main area of concern for the Asia Pacific region. “Inflation has emerged as a key risk in the region. Central banks in Australia, China and India have increased interest rates and policy makers are still closely monitoring inflation levels.”
Mr. Ford also commented on changes in how to evaluate investment opportunities: “Growth within the region is normalizing and, hence, the evaluation of where opportunities lie and who the best performers are should now move to the strategic positioning of companies and the quality of their earnings. The companies that are able to recognize and understand the region’s key emerging themes will find lots of opportunities for growth if they are able to react and respond quickly.”
Looking specifically at individual markets in Asia Pacific, such as China, India, Australia, Japan and Korea, Mr. Ford pointed out that Australia is benefiting from decreasing unemployment rates and increasing investor confidence. “In Australia, the impact of recent interest rate increases has been overestimated and tax cuts have had a positive effect on consumer spending. Housing prices remain strong and consumer confidence is high.”
In general, while Mr. Ford is cautiously optimistic towards India, he has also identified certain sectors with continuous growth momentum. “Television and newspapers companies have seen strong growth in advertising revenue and valuations in both consumer staples and the discretionary space have touched new highs. Discretionary stocks offer better growth prospects, due to the structural drivers of these stocks and in contrast to the defensive nature of staples.”
From an industry sector perspective, Mr. Ford singled out three distinct areas: Information technology, financials, and the continual rise of the consumer.
“Corporate IT spending is showing signs of improvement.” he said. “Very low corporate IT spending in 2009 is expected to improve as US corporate cash flows gain strength. Leading indicators also support the view that there is a good chance that corporate spending will pick up in the second half of the year.”
“We are also seeing a rise in consumer spending in the Chinese IT sector. Increasing advertising on the Internet, growing prosperity and growing use of social networking and Internet games are expected to boost IT companies’ earnings.”
For the IT sector in India, Mr. Ford also sees opportunities for investors, as IT services companies are expected to benefit from higher spending and pent-up demand. “The main driver for revenue growth for the IT sector in India is growth in the global GDP and corporate profitability. As the global economic situation continues to improve and as corporate profitability rises, the revenue growth of IT companies can lead to higher earnings and multiples, driving share outperformance.”
With regard to the financial sector, Mr. Ford noted that, due to sharp declines earlier this year, a number of financial companies are now attractively priced in South Korea, Australia and China. “Chinese banks and real estate securities have been among the worst performers in the region, and loan expansion is expected to slow in 2011. As a result, some banks and financial companies in South Korea, Australia and China are now priced attractively, opening up new opportunities for investors.”
Mr. Ford reiterated his view that there are many compelling investment opportunities regarding the consumer. “We are seeing a structural change in how consumers in the region are behaving and this provides some interesting long-term growth opportunities. Of note, the high ownership levels of some items, such as washing machines and mobile telephones, indicate that consumers in places such as China, India and parts of ASEAN have already begun to move towards Western levels of consumption. In other areas, the ownership of cars, for example, there is still a long way to go before China and India approach levels of ownership in countries such as the US. Consequently, the picture is not simple, and the investment case related to personal consumption focuses on both the purchase of services as well as manufactured goods.”
Fidelity International’s fixed-income investment director, Gregor Carle, pointed to opportunities in the corporate bond markets. “Without a doubt, there are good opportunities in the bond markets as a result of the broader dispersion of spreads which emerged post the peak of the crisis. After the strong tightening in spreads and decline in yields generally witnessed in 2009, we are now in a market where performance will be much more sensitive to quality research than we saw in 2009 when the scale of general market moves dominated. Beta will likely be much less important than alpha throughout the remainder of this year and with our strong research bias, we expect to capture this.”
“While there are good opportunities in Investment Grade, the high-yield space continues to look attractive versus other asset classes. With a continued outlook of extremely low interest rates and relatively high yields offered by this sub-investment grade asset class, investors are drawn to the income potential High Yield is offering. Defaults have peaked and are heading back in the right direction; while a double dip in global economic growth could change the rate of improvement or direction of defaults, there is significantly more clarity around issuers and they remain, generally, much better positioned for slower growth than they were prior to the previous downturn.”
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About Fidelity International
Fidelity International is an affiliate but separate company to Fidelity Investments and provides investment products and services to individuals and institutional investors outside of the Americas. Fidelity International has been in Asia for 41 years with offices in Japan, Korea, Australia, Hong Kong, Taiwan, Singapore and China. Fidelity International manages US$215.9billion Assets Under Management (as at 31 March 2010), has over 6 million customer holdings and manages over 770 funds. Fidelity International has one of the largest proprietary research teams in the world, providing insights into around 98% of the world's stock markets (as measured by the Morgan Stanley Capital International World Index, 4 June 2010). In Hong Kong, Fidelity is the largest provider of the ORSO (Occupational Retirement Schemes Ordinance) Member Choice Defined Contribution Scheme and is also one of the top ten MPF (Mandatory Provident Fund) scheme providers in Hong Kong.
Tel: 852 2629 2800
Tel: 852 2629 2800
.Source: Towers Watson Manager Watch, as at 31 March 2010.
.Source: Towers Watson MPF Performance Book, as at 31 March 2010.
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