Not time to pull back, say fund managers

As investors begin to take profits, fund managers argue that Asian equities will continue to outperform thanks to economic growth.
According to the JF Investor Confidence Index, a quarterly poll measuring investor sentiments in Hong Kong, local investors are beginning to take profits after a series of record-breaking index performances in recent days. There is continual preference for China, Europe and Asia for overseas investment, but it is unlikely that local punters will increase their stakes in the coming quarter.

Perhaps this is why a number of fund houses have recently urged investors to stay invested. Over the past week or so, several managers have held press conferences to assure the public that the market outlook couldnÆt be better.

ôWe are in the midst of the best economic expansion since the early 1970s, and it is set to continue,ö says Christopher Probyn, chief economist of State Street Global Advisors. His economics team forecasts global GDP growth could reach as high as 7% this year, a significantly higher number than the average 4.9% growth measured yearly since 1970.

Successive bull runs in China have contributed to investorsÆ cloud of suspicion that has led to selling pressure. Shanghai Stock Exchange recorded a 55.7% gain for its A-share market since the beginning of the year. Results from the B-share market are even more surprising û 127.6% compared to the whole yearÆs return from 2006 at 110.5%.

But fund managers say these run-ups have come from deep troughs and donÆt by themselves mean that share prices have spiralled out of control. ôDespite strong performance,ö says Mark Konyn, CEO at RCM Asset Management, ôwe are still seeing reasonable valuations in Asia-Pacific markets, certainly judged by historical standards.ö

This is best observed in Singapore and Malaysia, which have both been lagging markets since the Asian financial crisis. SingaporeÆs Straight Times Index and MalaysiaÆs KL Composite Index have delivered year-to-date returns at 19.4% and 27.8% respectively, outperforming together against the regional MSCI Asia Pacific at 7.8%, and the global MSCI World at 6.9%.

As for China, Konyn adds: ôThe June market correction didnÆt have a significant impact, either at the regional level or the global level.ö Stock prices have continued to rise to new peaks thanks to support from high trading activity û indeed, a singleÆs day market turnover in mainland China could well exceed the total trading activity from the rest of Asia. RegulatorsÆ attempts to nip a bubble in the bud, such as by the introduction of a stamp duty, have caused only temporary tremors.

The bumps are now frequent but fund managers urge investors to look beyond the next one. ôThe short term volatility just that û short term,ö declares Peter Wong, executive director at HSBC, which has recently announced a new $440 million fund to pump up the bankÆs participation in China.

His colleague, the new fundÆs manager, Richard Wong, investor director at Halbis Capital Management, explains there are reasons to expect A-share valuations to rise further: robust domestic consumption, increasing inward investments, rising Chinese income and retail sales growth û all against a backdrop of mild inflation at 2-3% and an appreciating renminbi. His growth forecast for this yearÆs China economy is set at 9% or higher.