From our vantage point as UK-based investors, it is too easy to take a purely domestic look and measure any economic strength or weakness on how it affects us.
It is the same for Asian investors, with Pidcock urging: ““It is important to consider both global and Asian factors when considering Asian equities. Factors external to the region have had a considerable impact on markets in the region in recent years as correlation between markets has been relatively high with investors moving between ‘risk-on’ and ‘risk-off’ periods in unison.
“We believe the two most important external factors are the ongoing crisis in Europe and the US recovery.” He continues, “In recent months, investors have become slightly more comfortable with the situation in Europe; however, we do not believe that the recent long-term deficit reduction plan in the EU is sufficient to solve the deep-rooted problems of over indebtedness and lack of competitiveness, and therefore expect these issues to dampen markets for some time. It also remains to be seen how a full default, or exit from the euro, by Greece or anyone else might be taken by markets,” he adds.
He also points to improving economic data in the US which is encouraging for exports from Asia, although he admits that any improvement is still minimal, something hinted at with the Fed committing itself to keeping interest rates at close-to-zero until at least 2014.
Looking closer to home, Pidcock describes the outlook for China as “the most important internal factor in Asia”.
He says: “Following the massive stimulus in 2009 and 2010, China now has less ability to manufacture growth than previously. Nonetheless, policymakers still have considerable tools at their disposal and have, to date, had remarkable influence on the economy’s path, in our view.
“Looking ahead, we expect the authorities to selectively ease monetary policy when necessary such that growth in 2012 will be lower but not drastically so. Longer term, we are less positive due to structural concerns of over-investment, lack of sustainable profitability and a dysfunctional banking sector.”
