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24 | International finance
Outlook on the
Asian markets
Following the publication of China’s GDP figures
on 16th July, Geoff Lewis, Head of Investment
Services with J.P. Morgan Asset Management,
Asia, analyses the current situation
sian stock markets have driven by a rebound in the manufacturing
A
sustained their uptrend in recent sector on account of inventory restocking, but
weeks, albeit slowing slightly beyond that the outlook for domestic final
from their sharp rally at the demand is cloudy. We do not expect to see
beginning of June. Investor risk much improvement in Japanese exports to the
appetite remained elevated on US or Europe in the near term and so China’s
stabilising economic data and economic recovery is also the key to Japan’s
hopes that the worst had passed for the global own economic outlook. Many Japanese
economy. companies are trading at historically low
Portfolio inflows are coming back to Asia, valuations. In our portfolios we are looking to
though so far we have seen the return of only a increase exposure to companies with higher
fraction of the money that left the region in operational gearing to a reviving economy.
2008. From an earnings growth perspective, This outlook follows a month of mixed
Asian equities look attractive relative to other fortunes. Throughout June, improving credit
regions. In the short term the global liquidity markets and more easing measures from central
theme will continue to support regional stock banks helped support global equities and other
markets, as the monetary policies of the G7 risk assets. Commodity prices continued to see
central banks are expected to remain loose in gains, with oil prices rising to USD73 per barrel domestic mutual funds continued to be net
the second half of 2009. Although we believe – an eight-month high. Regional stock markets buyers, but equity issuance was an overhang
the lows for Asian equities were seen in March, welcomed more positive economic data from with a slew of offerings in the pipeline.
we may also have seen the best part of the China that pointed towards a sustainable Preliminary signs of a trough in economic
recovery rally in the past three months. recovery. Industrial production and FAI for activity are becoming visible in India’s
Regional valuations are fair but no longer May came in above consensus, for example, economic data, but the federal budget
particularly cheap, and though earnings while new RMB bank loans have not been disappointed investors due to its lack of detail
momentum has improved recently the outlook reined back as some feared but have continued on measures to cut the fiscal deficit.
for profits in 2010 remains uncertain. It would to rise. Total RMB bank lending was over 30% Japan’s Topix rose 3.5% in June. The best
not come as a surprise to see a period of higher yoy in May. Chinese A-shares performed performing sector was securities & commodity
consolidation/range trading in markets over the particularly strongly in June, as did Indonesia futures, whose earnings benefit from the
summer. We think stock selection will be key in and Thailand, where foreigners continued to rebound in the market, followed by glass &
this environment. Although there could be buy. Performance in the rest of the region was ceramic products and textiles & apparel. The
some trading opportunities in heavily oversold more muted, with Korea and Taiwan seeing worst performance came from marine transport
Asian cyclicals, our strategic preference is to profit taking following their out-performance due to the decline in global shipping rates. May
stick with domestically-oriented stocks in earlier in the quarter. In Australia the banks industrial production and export volumes
preference to exporters. continued to lead the market higher, as did continue to show rapid improvement. Since
In Japan the economy looks to be bottoming consumer stocks which benefited from the bottoming in February, production has
and the question now is whether recovery can government’s fiscal stimulus package. After increased by 4.5% mom on average. Stronger
gather momentum. Monthly data points to earlier strong gains India took a breather in exports, especially across Asia, are the main
strong second and third quarter GDP numbers June as MSCI India fell 2%. Foreigners and driver of improvement.
July/August 2009 Investment International www.investmentinternational.com
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