Asia continues to lag other regions for integrating ESG principles with investing; better data and stronger regulatory requirements will help institutional investors, market observers say.
Ian Beattie is head of Asian equities at New Star International, which manages in excess of $2 billion in Asia ex-Japan. Based in London, he has been a fund manager for around 15 years, and has been the head of Asian funds at New Star for around eight years.
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?
Beattie: Asian stock markets considerably outperformed in 2007 as investors sought to participate in the regionÆs high growth rates. The region was even viewed as a safer haven amid the subprime crisis in the US, although the protracted nature of the subprime fallout means investors in Asia need to sharpen their geographical focus for 2008.
Investors are likely to be better served by the US interest rate sensitive markets of China, Hong Kong and Southeast Asia. These should benefit from further US monetary easing in response to the subprime crisis and weaker economic trends because their exchange rate regimes import this looser monetary policy.
If thereÆs a mild slowdown in the US, thatÆs going to be quite positive because Asia will import that lower interest rate environment and should be able to withstand the slowdown. If you are running money on a global basis, Asia is a pretty good risk-reward bet.
Have you made any significant changes to your asset allocation in terms of markets or sectors in the run-up to the coming year?
This coming year is going to be very much looking to see how events unfold. This past year was more about putting down some big bets and holding them and not losing your nerve
ItÆs dangerous to raise cash levels now. In a typical bull market where the credit cycle is positive and there is a lot of liquidity, you will have some very big one-off jumps. And if you miss a handful of trading days within a year, youÆll have terrible performance.
What are your favoured markets in Asia?
During 2008, it is possible that certain Asian markets will be viewed as a haven for investors looking to escape the nervous conditions affecting western economies. This is because Asian countries have mostly become creditor nations not debtors. Asia is not suffering from subprime issues and does not have severe debt problems. As such global strategists are increasingly seeing the region as lower risk.
Among countries, China remains appealing. The growth of consumer banking from small beginnings, rising wages and the wealth effect of rising asset prices create a potent mixture. Attention will also be turned on the country as it hosts the 2008 Olympics. It is even possible that a full blown bubble may develop emanating from China as the countryÆs liquidity stockpile and appreciating currency lead asset prices higher.
IndiaÆs economy and stock market is likely to benefit from the countryÆs proactive and successful recent monetary policies. Falling market interest rates should support industrial production and investment. The country also has a strong domestic consumption sector. The threats to this benign environment would come from political upheaval or a serious deterioration in US economic conditions.
What are the markets you are going to steer clear of in the coming year?
Politics is still a major issue in Taiwan. In Korea, we are finding it difficult to find good investment opportunities at the moment.
Which sectors do you expect to outperform in the coming year?
Of the sectors with potential, financial stocks remain attractive. Few Asian banks own much subprime debt and even fewer use these types of securities to generate growth. As a result, their business models remain intact and unlikely to be downgraded. Property appears reasonable value in relation to wages while the development of urban centres should provide interesting opportunities as demand for prime property, both residential and commercial, grows.
Which sectors do you expect to underperform?
Any softening in US demand will be detrimental to countries in North East Asia such as Taiwan and South Korea. Growth in these countries is more closely tied to the shifting fortunes of US consumers and global economic growth in general.
What are the main challenges that you expect to face in the coming year?
Definitely what happens to the US economy, the extent of the slowdown, and how this will affect Asia will be the biggest challenge. There is a tipping point where a worse-than-expected US economic slowdown, or much worse a recession, could hurt exporters in the region. That is not my expectation. But nevertheless, in Asia, most of the countries have a domestic market that is still relatively quite small to their trade account. ItÆs difficult to be too confident.
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