AsianInvestor has sought out Asian fund managers and asked them about their investment outlook for the coming year.

Alistair Thompson is deputy head for Asia ex-Japan equities at First State Investments, which manages around $21 billion in the region. Based in Singapore, Thompson has been with the firm for four years and has 17 years in fund management experience in total.

What are the biggest opportunities that you see in the markets you are responsible for in the coming year? How are you preparing to take advantage of those opportunities?

Thompson: Primarily those companies with defensive earnings streams such as consumer staples, utilities and telecoms. We are also optimistic on the outlook for gold (hedge against inflation, antithesis of paper money, therefore good hedge against further US dollar weakness). We also favour HK property companies, particularly as the US Federal Reserve has indicated it will continue to cut interest rates in an attempt to dilute the impact of the credit crunch.

Have you made any significant changes to your asset allocation in terms of markets or sectors in the run-up to the coming year?

Yes. We have dramatically reduced our exposure to banks, firstly due to valuation concerns and secondly due to the fact that some have got caught with exposure to credit derivatives such as CDOs.

What are your favoured markets in Asia? Which sectors do you expect to outperform in the coming year?

We are bottom up investors, as such our country weightings are a direct result of the companies that we feel have the most upside rather than taking a top down view of a country. The countries where we have significant exposure to are Hong Kong, Singapore and Malaysia.

Hong Kong. We like interest rate sensitive companies such as Swire Pacific, Hang Lung Group, Cheung Kong and Wing Hang.

Singapore. We remain optimistic on the oil rig cycle and like companies such as Keppel Corporation and Sembcorp Industries.

Malaysia. We are positive on the outlook for soft commodities and select banks and like companies such as IOI Corporation and Bumi Commerce.

What are the markets you are going to steer clear of in the coming year?

We struggle to identify good quality companies in South Korea.

What are your market weightings within an Asia ex-Japan equities portfolio?

China - Underweight
Hong Kong - Overweight
India - Underweight
Indonesia û N/A
Korea - Underweight
Malaysia - Overweight
Philippines - Overweight
Pakistan - N/A
Singapore - Overweight
Taiwan - Underweight
Thailand - Overweight
Vietnam û N/A

What are the main challenges that you expect to face in the coming year?

The economic outlook is positive for Asia ex-Japan equities, with domestic consumption, in particular, expected to remain buoyant. We are more cautious about the stocks we are buying as the markets have been driven to high levels by investor exuberance.