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International investment | 21
Long-term
case for Asia
remains sound
by Wilfred Sit,
Chief Investment Officer for
the Asia Pacific Region,
Mirae Asset
F
ollowing the aggressive sell-off of emerging market trade has become far stronger infrastructure sectors and have examined the
many Asian stocks over 2008 and in recent years. Indeed, we believe much of the case for these in more detail below.
the volatility that has charac- fear stalking the market is misplaced.
terised the early part of this year, A key reason for this is that Asian govern- Asian consumer sector in strong
it would not be unreasonable to ments in general have huge foreign reserves and shape to weather storm
expect the region to experience a enjoy a healthy fiscal and current account sur- We believe the earnings outlook for Asia’s con-
prolonged period of underperfor- plus. Asian governments have also been main- sumer companies will demonstrate much
mance as it buckles under the force of the global taining a healthy balance sheet as they have greater resilience compared to other more
recession. But as we shall argue in this article, we learnt their lessons from the 1997/1998 Asian export-oriented sectors.
believe that Asia’s leading economies are better financial crisis. Debt to GDP ratios in general Asian consumers traditionally have a high
equipped to deal with current conditions than are not at alarming levels for nearly all Asian savings ratio and low debts. For example,
their western counterparts. economies, and most have enough foreign China’s savings to GDP ratio is over 50%, com-
reserves to pay off short term external debt. pared to below 10% in the US. Thus Asian
Misplaced fear Because of these healthy financial balances, domestic consumption is likely to remain
Despite Asian economic growth slowing to Asian governments are able to run a fiscal robust and is not suffering the type of collapse
around 5% for 2009, it still remains significantly deficit in order to fund economic stimulus that we have seen elsewhere in the world. A key
higher than other major economies, which are packages. illustration of this is that China overtook the
likely to stagnate for some time to come. It is Turning to Asian corporates, it is worth not- US in the number of new car sales in January
worth noting that as a percentage of global ing that they are not highly geared and plenty of this year. Furthermore, Asia does not have a
GDP, the Asia Pacific region (excluding Japan) companies are in net cash positions. Driven by sub-prime mortgage problem.
now accounts for 24%, compared to the US improvements in corporate management,
(21%). Robust levels of Asian domestic con- return-on-equity for Asian corporates has been Consumer staples versus
sumption coupled with large scale Government trending up in recent years. Levels of borrowing discretionary stocks
investments will cushion the negative impact of remain low and are expected to continue falling. In fact, during the recent sharp correction con-
the export slowdown. Given this backdrop, we believe that several sumer staples (everyday household necessities)
Commentators often cite the slowdown in sectors, particularly those focused on the have been a huge outperformer due to their sta-
export growth as a key obstacle to Asia’s contin- domestic market as well as a number of globally ble earnings profile. However, consumer discre-
ued progress but there is far less dependency competitive exporters, look undervalued. We tionary stocks have also seen large price
now on exporting to western economies. Intra- are particularly excited about the consumer and corrections. While we still believe that
www.investmentinternational.com May 2009 Investment International
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