Asia's Outlook For 2008

Article from http://www.fundsupermart.com/main/research/viewHTMLPrint.tpl?articleNo=2396

Will we see a Christmas rally at end-2007?

What are the chances of a rally in Asian markets from now till the end of the year? We are very much taking our lead from the developed countries at this point. In the very short term if the rest of the world rallies, Asia will follow suit. Looking into next year, it is going to be more about strong Asian fundamentals but at this point, correlations are very high.


Outlook for financials in 2008

Financials have been under a lot of pressure, are we going to get more bad news as the year winds to a close? The news on Asian financials has been relatively mixed. We have had the Bank of China coming out with a fairly large exposure to subprime. We think that we have a good idea now about overall exposure to US subprime mortgages in Asia and the good news is that it's a very small percentage of assets. Obviously like everybody everywhere else in the world, we are trying to work out what the ultimate writedowns will be on those exposures. We think that there's still room for some disappointment in the short term but longer term in Asia, the problem is easily contained.


Outlook for Asia in 2008

Lately, Chinese officials have been getting lots of ear bashing from European politicians, central bankers, commissioners as well, they are not going to listen are they? They are going to do what they need to do for their markets, what does that mean for the Chinese stockmarket as we head into next year? That is absolutely right, I do not think the Chinese are going to bow to any external pressure; they are very much going to do what they think makes sense for the Chinese economy. Obviously with the undervalued currency, with real interest rates in China looking probably a little too low for the sort of blistering pace we've got in terms of growth in the Chinese economy, there needs to be some sort of adjustment in the currency, probably a modest increase in interest rates as well. So, the Chinese is likely to keep doing what they've been doing, slowly allowing the currency to appreciate against the basket of other currencies and slowly increasing interest rates.


What do you feel about the technology sector in Asia?

Technology from an Asian investor's point of view looks a little bit troublesome because of the large US exposure of Asian tech companies hence their underperformance now. There is a lot more focus on domestic growth, infrastructure, all of those really impressive structural drivers of Asian growth over the longer term and I see no real reason for that to change. Tech is likely to perform again in Asia when people start feeling more optimistic about where the US is heading.


As we move into 2008, what do you think is a safe theme or sector in Asia for investors?

It is still going to be about domestic growth. The cycle in Asia started in 2000 with a surge in exports that has really driven economies over the last 5 years. Going forward, it is really about Asia picking up in terms of domestic growth and this is where investors should focus their exposure.


Do you think commodities are still a strong global play right now?

Investment in infrastructure across Asia is booming at the moment. This is going to keep demand for commodities strong over the next few years. Less demand from the US is a short term risk but we believe that the medium and longer term demand for commodities from China and India will continue to outstrip supply.

Why Warren Buffett's Keen on Korea

Article from http://www.businessweek.com/print/globalbiz/content/nov2007/gb20071121_560747.htm

Attractively priced" stocks, healthy debt ratios, plus solid manufacturing prowess position Korea to profit from growth in China and the Mideast

by Moon Ihlwan

In other parts of the world, South Korea's gross domestic product growth—projected at around 5% this year—would make it a high-profile destination for portfolio managers. But since Korea is in Asia, the country is largely overshadowed by the dazzling economic performances of China and India. As concerns grow about overvalued Chinese and Indian stocks, though, money managers shuffling their Asian portfolios are finding Korea increasingly attractive. For American billionaire investor Warren Buffett, for example, China is out, and Korea is in. During his visit to Asia late last month, Buffett cautioned against overreaching in China. Yet he expressed confidence in Korean equities, describing the country as "one of the world's most attractively priced markets."

Indeed, Buffett's holding in Korean steelmaker Posco (PKXFF) is one of his top-performing stock investments this year. Buffett's Berkshire Hathaway (BRKA) spent $572 million over the past three years or so for a 4% stake in Posco, one of the most profitable steelmakers on the planet, and that stake is now worth well over $2 billion. Berkshire recently sold off its shares in PetroChina, the only Chinese company it owned, but Buffett said during his brief visit to Korea on Oct. 25 that he would hang on to Posco. "It's a great company and great companies get worth more and more," he said.

Certainly Korea is not immune to the turmoil shaking markets worldwide. Shocks from the U.S. credit crisis and soaring oil prices have pared the Seoul exchange's benchmark Kospi index by around 9% this month. Weaker-than-expected tech demand has sent prices nose-diving in memory chips (BusinessWeek.com, 6/15/07), where the Koreans rule.

Samsung Electronics (SSNGY), the bellwether for the country's information technology sector, has fallen nearly 15% this year and has laid off some 1,600 workers, almost 2% of its workforce.

Korea Excels in Shipbuilding

Still, the benchmark Kospi index is up about 30% from the end of last year, a reflection of strong growth in other parts of the Korean economy. A major attraction is the country's manufacturing prowess in diversified industries. Korea's shipbuilding, steel, petrochemical, and other smokestack companies are booming as emerging economies spend heavily to build up their infrastructure and as their shipping trade explodes. "A number of Korean companies are dominant forces in cyclical industries and have historically outperformed their global peers when their industries are in an upswing," says Yang Ho Chull, chief executive of Morgan Stanley (MS) Korea. "What's particularly attractive for portfolio managers is the strong performance of these companies, fueled by the rapid growth of China."

Consider the shipbuilding industry. As China turns into the factory of the world, demand for new ships to carry China trade is expected to remain strong until at least 2010, according to a report by the Bank of Korea, the central bank in Seoul. That means Korea's shipbuilding firms, which built 41% of all ships delivered last year and include the world's top three players—Hyundai Heavy Industries (HYHZF), Samsung Heavy Industries (SMSHF), and Daewoo Shipbuilding & Engineering (DWOSF)—will enjoy a boom (BusinessWeek.com, 5/18/07) for a few more years.

The influx of shipbuilding revenue to Korea is so huge that the central bank warned this month against further appreciation of the Korean currency. The shipbuilders, who are sitting on enough work for almost four years, cash in their future revenues to be received in dollars on the forward market to hedge against currency risks. Banks that take up the forward deals then sell dollars for the won on the spot market to offset their dollar forward purchases, and subsequently borrow dollars abroad to settle their spot deals, in the process pushing up the won. Little wonder the share price of Hyundai Heavy, the global shipbuilding leader, has more than tripled so far this year. On Nov. 8, the world's top shipbuilder released its third-quarter results, reporting that its net profit more than doubled, to $475 million, from $230 million in the July-September period last year.

Greater Transparency Means Higher Stock Prices

Other cyclical sectors such as steel and petrochemical industries are also benefiting from rapid development of emerging markets. LG Chem (LGCLY), Korea's largest petrochemical company, churns out products ranging from plastics to flooring and automotive parts. It posted a 73% jump in its net profit, to $229 million, in the third quarter. LG shares have jumped 120% so far this year.

The introduction of global corporate standards in Korea since the 1997 Asian crisis has also paved the way for share gains. "In the past, the Korean market has traded at a relative discount because of a lack of transparency and liquidity; but with significant improvement in these areas, the discount, at least for the leading 40 or 50 Korean companies, is disappearing. It is no longer a major issue," reckons Yang at Morgan Stanley.

Corporate restructuring since the crisis has also improved the financial health of Korean companies. Economist Lim Kyung Mook at Korea Development Institute, a government-funded think tank, points out that the country's average corporate debt, which used to be as high as four times equity in the late 1990s, has been cut to below 100% of equity. "Many Korean companies are now sitting on a cash pile big enough for them to weather a downturn and reap handsome profits from the next upturn," Lim says.

Higher Oil Prices Help Korean Contractors

Take LG.Philips LCD (LPL), which has maintained its debt level well below half its equity. The world's second-largest maker of liquid-crystal display (LCD) panels was bleeding red ink for four consecutive quarters until March of this year because of a supply glut in the industry. Yet the company last month reported a net profit of $573 million for the July-September period, its strongest profit in 13 quarters, against a loss of $249 million a year earlier, as demand for thin panels for computers and TVs grew.

Even an upsurge in oil prices is translating into a bonanza for engineering and construction companies in oil-importing Korea. That's because the Koreans take a big chunk of the red-hot Middle East construction market. Much of the money earned from high oil prices is spent in building new refineries, petrochemical plants, highways and water desalinization plants, where Korean contractors are strong.

There's no sign the stream of new construction orders will slow soon. In Dubai, the world's largest building, the world's largest indoor ski slope, and three artificial islands shaped like palm trees are all under construction. Saudi Arabia is building the $27 billion King Abdullah Economic City. And Kuwait plans to double its refining capacity at a cost of $14 billion. "The Middle East countries have never been so determined to set up their own industrial base," says Hong Sung Il, a general manager at Samsung Engineering (SGRGF), a specialist plant contractor whose share price more than doubled so far this year. "The construction boom there will continue at least until the end of this decade." Korean companies have won $25.6 billion worth of construction contracts in the first nine months of this year, up from $12.6 billion a year earlier, according to Seoul's Construction & Transportation Ministry.

Decoupling from the U.S. Economy

The dwindling dependence of Korea's cyclical industries on the U.S. economy is good news in the face of slower consumer spending in America (BusinessWeek.com, 11/26/07). "To some extent, the Korean economy has been decoupled from the U.S. economy," says Chang In Hwan, chief executive at Seoul fund manager KTB Asset Management. "A spending crunch in America will be felt much more mildly here now than it was a few years ago," he says.

Encouraged by the more balanced industrial strength, a growing number of Korean consumers are putting their money in stocks instead of in real estate and bank deposits. The amount of money in equity mutual funds, or investment trust funds as they are known locally, reached $111 billion this month, up from $50 billion at the end of last year. "Short-term corrections and fluctuations are inevitable, but in the longer term better corporate profitability and improved liquidity will drive the Korean market upward," says Chang.

Moon is BusinessWeek's Seoul bureau chief .

Three Ways to Profit Alongside Warren Buffett

Article from http://www.moneymorning.com/2007/12/07/three-ways-to-profit-alongside-warren-buffett/print/

Posted By admin On December 7, 2007 @ 12:01 am In Warren Buffett, Korea, Main Essay | Comments Disabled

By Martin Hutchinson
Contributing Editor

For all you global investors out there, riddle me this: What has investment guru and Berkshire Hathaway Inc. ([1] BRK.A, [2] BRK.B) Chairman Warren Buffett recently bought 20 of that we should be looking to invest in ourselves?

• Corporate jets? No. While a famously frugal man, he’s owned several hundred of them, especially after taking control of Executive Jet, the corporate jet timesharing service.
• African countries? No, he has declared that the great majority of his charitable activities will be carried out through the [3] Bill & Melinda Gates Foundation, so if an African country or two gets bought by accident, it will be the Foundation doing the bidding.
• Houses? No, he currently owns only one home, in Omaha; he sold his more expensive home in Laguna Beach, Cal. in 2004. He was also notably absent in buying subprime mortgages, and hasn’t yet started buying housing companies. That’s a sign we aren’t yet at the bottom of the housing decline. When Buffett starts buying, we can all breathe a sigh of relief because we’ll know the bottom must be near.
• Tax shelters? No, Buffett is famous for believing in the estate tax, and in substantial taxes, generally. Mind you, the $40 billion he’s given away to foundations won’t be taxable….

Give up? Well, if you’ve been reading Money Morning, you shouldn’t be stumped. Buffett last month bought shares in [4] 20 South Korean companies. A lot of other smart money is going there too; [5] Macquarie Group Ltd., the huge Australian investment bank, has together with the private equity company MBK, set up in 2005 by four former [6] Carlyle Group executives, just bought 30% of the second largest Korean cable operator. MBK and another U.S.-based private equity company CCMP Capital are short listed, along with two Korean companies, for the electronics retailer Himari Co., worth around $2.5 billion. In total, about $26.8 billion of acquisitions have been done in Korea since July.

Do these guys know something we don’t? Not really. We’ve been calling attention to the Korean market since early this year. The country has an excellent long-term productivity growth rate of more than 4% per annum, yet its stock market trades at only about 12 times earnings. One reason has been that the country has had a rather anti-business government under [7] President Roh Moo-hyun, but that may be about to change. Presidential elections are to be held Dec.19, and the Grand National Party candidate [8] Lee Myung-bak is currently leading in the opinion polls - the GNP, out of power since 1997, is the pro-business party that has presided over the era of Korea’s fastest growth, which took place from 1970-95. Lee’s lead is substantial; in the latest poll he has 38% of the intended vote, compared to 18% for a right-wing challenger and 14% for Chung Dong-young of the government party.

If Lee wins, business conditions in Korea may improve - for one thing, the party would presumably stop harassing the major companies as Roh has done, imprisoning the chairmen of three of the six largest [9] chaebol conglomerates. Also, with taxes under control and business conditions more friendly, the market may well rise to a higher P/E ratio. There will also be congressional elections in April to negotiate before the full shape of the new government is known, but now may indeed be a good time to buy.

Buffett bought shares in 20 Korean companies, but you don’t need to go nearly that far to get a decent exposure to the market. For one thing, you can buy the iShares MSCI South Korea Index Fund ([10] EWY), an exchange-traded fund (ETF) whose only current disadvantage is that it is trading at about a 4% premium to its underlying net asset value. This reflects the fact that other U.S. investors have presumably had this same idea.

A second possibility is Korea’s largest bank, Kookmin Bank ([11] KB). Kookmin trades at a P/E ratio of less than 10 right now, which makes it look like a real bargain. Of course, banks in general have been battered by the subprime-mortgage crisis, but Kookmin has little exposure to the troubled U.S. housing and credit markets and its own credit problems in Korea surfaced four years ago, when there was a credit-card-debt disaster. This looks like a good double bet, on a gradual recovery of those banks with little connection to the U.S. mess, and on a re-rating of Korea in general.

Finally, you can buy what Buffett bought - 4% of Posco ([12] PKX) the Korean steel giant that has a P/E ratio of 14 [Presumably, you’re not out to buy 4% of it, which would cost you $1.9 billion, but you see what I mean]. Posco has business in both Korea and China, and is one of the largest and most efficient steel companies in the world - well worth looking at.

The bottom line: You can buy the same things as Warren Buffett; you just can’t buy as much.

The coming China crash

Article from http://www.atimes.com/atimes/China_Business/IL05Cb02.html

THE BEAR'S LAIR
The coming China crash
By Martin Hutchinson

While the Chinese stock market, as measured by the China Securities Index 300, is down 18% since October 16, that follows a period of almost two years, since January 1, 2006, during which the CSI 300 soared 535%. Chinese economic growth is currently running at more than 11% and the big money is convinced that it will continue. At the same time, the country’s foreign exchange reserves have grown to US$1.4 trillion, the largest in the world.

A crash would appear to be imminent!

Bears on China have been common for the last decade, and their
track record has not been good. To take just one unfair example, Henry Blodget, the former Internet genius, wrote in Slate in April 2005: "You've probably been daydreaming about the fortune to be made in Chinese stocks. Well, keep dreaming ... you'll eventually conclude that you could have done better selling insurance in Toledo." That was about six months before the Chinese market took off, and if anybody has made 500% on their investment by selling insurance in Toledo during that period, I haven't met him.

To see why a crash may be coming, it is worth examining the behavior of the China Investment Corporation, the US$200 billion sovereign wealth fund set up by the Chinese government in September. Now $200 billion is a fair chunk of cash; you could almost buy all but three US corporations with that (at today's prices, ExxonMobil, General Electric, Microsoft – there are four or five others including Google that barely top the bar.) Six weeks ago, the power of sovereign wealth funds was celebrated and China Investment's moves into the market were awaited with bated breath.

Well, so much for that. A third of China Investment's portfolio is to be invested in Central Huijin Investment Company, a purchaser of bad loans from the Chinese banks, and another third will recapitalize China Agricultural Bank and China Development Bank, to shape them up for privatization. About $3 billion of the fund was invested in the private equity manager Blackstone in May - that may have bought China useful political contacts, but it is now worth $2 billion. And the remainder is being invested very carefully, primarily in US Treasury securities - which are also losing money steadily in yuan terms.

The lackluster investment strategy of China Investment exposes a central flaw in the Chinese economy, its lack of a rational system of capital allocation. For more than a decade, Chinese state-owned companies have made losses and have been propped up by the banking system. Since 2004, loss-making state-owned companies have been joined by overbuilding municipalities, erecting white-elephant office blocks in attempts to turn themselves into the next Shanghai. None of these losses have resulted in bankruptcy; instead the cash flow deficits have been covered by the Chinese banks. As a result, these banks have an enormous volume of bad loans $911 billion at May 2006, according to a later-withdrawn estimate by Ernst & Young, which must surely have ballooned to $1.2 trillion to $1.3 trillion now.

That explains why China Investment is somewhat unaggressive in its international investment strategy. China's $1.4 trillion of reserves will in fact almost all be required to prop up the banking system when the inevitable liquidity crisis occurs. If the banks are to survive, China Investment will have to be followed by six more sovereign wealth funds of equal size, each of which will have to abandon its attempts to take over Exxon or Google and pour its money down domestic rat-holes.

A $1 trillion problem in subprime mortgages has caused even the US money market to seize up and has required frequent applications of sal volatile by the Fed. Since China's economy is around one fifth the size that of of the United States, the Chinese banking system's bad debt problem is in real terms about five times that of the United States, or about 40% of its gross domestic product.

We have seen this movie before; the Japanese banking system's bad debts after 1990 totaled around $1 trillion, about 30% of Japan's GDP. The result was the bursting of the 1980's bubble and a period of little or no economic growth that lasted well over a decade. Admittedly the Japanese authorities made matters worse by refusing to face up to their bad debt problem and issuing more government bonds to fund witless Keynesian public spending schemes.

Nevertheless, we can have very little confidence that the Chinese authorities, once the same problem stares them in the face, will do any better. After all, at least one of the alternative policy mixes, that tried by Herbert Hoover and the Federal Reserve in 1930-32, proved very much worse. Per capita US gross domestic product was no higher in 1940 than it had been in 1929, as in the Japanese case, but in the interval it had declined by a horrifying 28% and had recovered very slowly. If China faces the choice between a decade of stagnation, as in Japan from 1990-2003, and a decade of economic collapse, as in the United States from 1929-1940, it will rightly prefer the Japanese alternative.

It may not however have the choice. One of the factors that kept Japan out of real trouble in the 1990s was continued strong growth in the US and world economies; thus its magnificent export industries were able to continue growing, albeit at a slow rate, and provide a certain amount of traction for the economy as a whole. However, China will find it difficult to do the same, since the next decade does not seem likely to be a period of robust world growth. Far from it. The United States seems fated to endure at least a few years of very sluggish growth due to its housing market crash, and Britain appears to be in a similar mess, so even relatively robust growth in the resurgent economies of Germany and Japan may not be sufficient to keep Chinese exports growing.

At that point, China will have two alternatives. It can allow the banks to work their way out of their bad loans, condemning the domestic economy to probably a decade of little growth and extremely tight credit (high Chinese savings would alleviate this problem, but they will be trapped in the Chinese banks because the authorities foolishly do not allow Chinese citizens to invest abroad). Alternatively, it can inject more or less its entire foreign exchange reserves into the domestic banking system in order to recover its bad debts, which would allow the Chinese economy to continue expanding, but at a cost of devastatingly high inflation from the additional money pumped into the system (the $100 billion plus of Chinese bank initial public offerings carried out in 2006-07, pumped into the domestic economy, already appears to be worsening Chinese inflation and China Investment’s $130 billion will doubtless further aggravate the problem.)

We have seen societies with low economic growth, very high inequality (as China has now) and persistently high inflation; they are collectively known as Latin America. Since China also has much of the corruption that bedevils Latin America and its government lacks any genuine understanding of the free market and is increasingly dominated by special interests, it may indeed be fated to follow a Latin American growth path for the next few decades, with a tiny entrenched elite enriching itself at the expense of the disfranchised masses. That would be the worst possible outcome for the Chinese people, but it is not by any means impossible.

Many observers of the current US financial market downturn comfort themselves with the thought that the world now has more than one growth engine, and that China, with four times the US population, can because of its very high growth pull the world economy along sufficiently even when the US stalls. However, if China is about to incur the inevitable backlash from its recent debt and equity bubbles, during which practices have flourished that have no place in a well-functioning free market, then we may be entering a world in which the two main growth engines of the last decade are both broken. Growth in such a world will be truly sluggish and inflation high, as the world struggles to cope with the effects of an excess of cheap money now grown toxic.

The problem with major recessions is that they tend to produce foolish political reactions. In the United States, it seems likely that a major recession if we have one will produce resurgent protectionism and an aversion to world trade, which to the voting public will appear to have been responsible for the loss of millions of good US jobs without any corresponding gains to the living standards of the majority. Japan, bless it, remained admirably politically stable during its sluggish decade, and eventually found a leader in Junichiro Koizumi who was able to lead it back into renewed growth.

In China, there can be no assurance whatever that a populace whose living standards have suddenly stopped improving will not turn to violent nationalism and/or counterproductive economics. Since the country is not a democracy and not likely to become one, the authorities are likely to react to hardship as did Vladimir Putin to the chaos of late 1990s Russia, imposing even more draconian repression and seeking a military adventure abroad to occupy the masses of disaffected youth and distract the public from its new poverty. That too would produce a future in the West far worse than would be cased by a mere domestic recession.

Bears who weary of observing the chaos in the US financial markets can cheer themselves up by looking at China. There will be more than one source of the oncoming world downturn!

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found at www.greatconservatives.com.

Strong Korean November Trade Data Bode Well For Economy

Article from http://www.fundsupermart.com/main/research/viewSectorPrint.tpl?articleNo=8151

South Korea's November trade data came in better than expected, with exports and imports hitting record highs by value, suggesting the economy will maintain good growth momentum in the coming months despite concerns of slowdowns in the U.S. and China.

3 December 2007

SEOUL (Dow Jones) -- South Korea's November trade data came in better than expected, with exports and imports hitting record highs by value, suggesting the economy will maintain good growth momentum in the coming months despite concerns of slowdowns in the U.S. and China. "The higher-than-expected exports growth rate shows that the U.S. economy is faring better than expected and China is maintaining positive economic growth, so the local economy will be able to keep its momentum," said Lee Sung-Kwon, an economist at Goodmorning Shinhan Securities. The positive indicators should ease any concerns the Bank of Korea has about economic growth prospects, allowing it to focus on keeping inflation in check, economists said. The Ministry of Commerce, Industry and Energy said Monday in its preliminary report that exports rose 17.5% in November from a year earlier to total $35.95 billion, exceeding the $35-billion mark for the first time. The value of November's imports increased 26.5% to a record $33.85 billion on rising crude oil and raw material prices. As a result, the trade surplus hit $2.1 billion in November, higher than the market average forecast of $1.86 billion and October's $1.89 billion. A recent poll of seven economists by Dow Jones Newswires had indicated on average that exports would rise 13.7% and imports would increase 22.7%. Due to robust exports, the accumulated trade surplus for the January-November period totaled $16.15 billion, surpassing the government's target of a $15 billion trade surplus for 2007. In October, exports rose 23.1% to $34.5 billion and imports increased 27.3% to $32.61 billion. The government attributed the increase in exports to rising demand for general machinery, wireless communications devices, petroleum products, petrochemical goods and liquid crystal display devices, which all showed strong double-digit growth on year. But the value of overseas sales of semiconductors - a mainstay export - fell 11.4% on year due to a steep fall in chip prices. That of automobiles rose a mere 3.5% in November because of a fall in demand from the U.S. and the European Union, according to the statement. "Exports achieving such a high figure despite the lackluster performances in the chip industry, shows how developing nations - aside from China - have become strong supporters of local exports," said David Kim, an economist at Woori Investment & Securities. Exports to China rose 23.1% on year in the first 20 days of November, while those to Asean nations increased 23.6%. Exports to the U.S. rose 6% on year during the period. Imports rose because of an increase in the price of imported crude oil and a continued rise in purchases of steel and nonferrous metals, the government said. Imports of raw materials increased 32.8% on year in the first 20 days of November. Capital goods imports rose 23.6%, while consumption goods rose 15.6%, indicating the recovery in domestic consumption has good momentum. "High oil costs and the rise in prices of raw materials are expected to become burdensome on the trade balance in the future," the ministry said. Local financial markets were unmoved by the trade data, as market players were more focused on the global trend, including concerns over risk aversion and a rise in short-term interest rates. The Korea Composite Stock Price Index, or Kospi, was down 0.1% to 1904.23 at 0230 GMT. The benchmark five-year treasury bond was up six basis points to 5.90%. The dollar was at KRW923.8, up from Friday's finish of KRW921.1.

DJ Asia Fund Poll: Indonesia Joins China And India As Asia Favorites

Article from http://www.fundsupermart.com/main/research/viewSectorPrint.tpl?articleNo=8123

Indonesia has moved up the ranks recently to join China, Hong Kong and India as a favorite investment destination among fund managers.

29 November 2007

HONG KONG (Dow Jones)--Indonesia has moved up the ranks recently to join China, Hong Kong and India as a favorite investment destination among fund managers. For the second month in a row, Indonesia has come out with a solid overweight weighting, in a monthly poll of fund managers conducted by Dow Jones Newswires. That's up from a slight overweight earlier in the year. Expectations for further interest rate cuts are piquing interest in the country. Indonesia's declining interest rate has helped fuel domestic demand, proving a boon to makers of durable goods, electronic and household appliances as well as financial services and property companies. The country's natural resources and plantations are also drawing attention amid growing global demand for resources and alternative energy sources such as palm oil. Although Bank Indonesia kept interest rates unchanged at 8.25% in September amid inflation concerns, further cuts are expected. Citigroup said in a recent research note that further easing measures by the U.S. Federal Reserve could increase the probability of cuts in Indonesia. Fund managers see the cuts paving the way for more growth. Citigroup forecasts gross domestic product growth in Asia will exceed 8% in the next two years with China and India leading the way, but believes that Indonesia has one of the best chances for GDP growth acceleration. Indonesia's stock market was among the best performing in Asia in October and again in November. The country's index finished up 16.5% in October. After some weakness mid-November, the Jakarta Stock Exchange Composite is up nearly 3% for the month, and 145% so far in 2007. But with investors flocking in, high valuations are becoming a concern. With stocks trading at 21.5 times estimated 2007 earnings and 18.9 times forward earnings the market is trading above historical norms, managers at Halbis, the active investment specialist of HSBC Group, point out. Other fund manager favorites in the region are China, Hong Kong and India. The continued industrialization and growing middle class wealth in China and India remain irresistible long-term investment themes. Valuations in China are high, with stocks frequently trading at 40 to 50 times earnings, but valuations in mainland markets are being boosted by retail investors, who have significant savings but few investment choices. China bulls think that mass of liquidity could lift stock prices longer than expected. The Hong Kong stock market, meanwhile, has lower prices but is expected to benefit from spillover from Chinese investors. Many institutional fund managers favor the Hong Kong market because of its lower valuations.

Asia Trails Europe As Favourite Region On Valuations

Meanwhile, the Philippines stumbled to a slight underweight from slight overweight. The declining interest in the country comes despite some positive factors, including accelerating domestic consumption and expectations for another rate cut by the central bank. In the second quarter, Philippines' Gross Domestic Product rose 7.5% from a year ago - the highest in the past 20 years - driven by domestic consumption. That growth rate slowed somewhat in the third-quarter to a rate of 6.6%, which was within a range expected by economists. The outlook for the Philippines is optimistic as well, according to JP Morgan. "Low real interest rates and high excess liquidity should be conducive for sustained domestic inflows into the stock market," analyst Kelly Lim-Bate said in a recent note. In addition, direct exposure to the slowing U.S. economy is low since exports to the U.S. are now about 20%, down from 39% in 1992. Asia, however, continues to trail Europe as a fund manager favorite as the region's red hot stock markets have made rising values harder to swallow. "Asian equity markets are now on similar valuations levels to developed markets. This reflects greater confidence in the ability of Asian economies to grow faster than developed economies," said Tony Dolphin, director of economics and asset allocation at Henderson Global Advisors. However, he adds, "performance will depend on the global economy. If a recession is avoided, Asian stocks are likely to outperform. If a recession occurs, they will fall sharply." Each month, Dow Jones Newswires surveys fund managers on portfolio weighting recommendations for the succeeding months, with most looking at a 12-month horizon. This latest survey was taken over the past 10 days. The respondents for this month's survey were Aberdeen Asset Management Asia, Allianz Global Investors,Credit Agricole Asset Management, Halbis, Henderson, ING Investment Management, JF Asset Management, Prudential Asset Management, New Star Asset Management, Schroder Investment Management, Standard Life Investments.

Japanese Outlook

Malaysia : More Upside On The Way!

April 17, 2007
http://www.fundsupermart.com/main/research/viewHTMLPrint.tpl?articleNo=2182

Summary:

• The recent relaxation of investment laws by the Malaysian government has set the country's investment climate right for investors. We think the Malaysian bourse has more notches to climb!
• Improving Economic Fundamentals
• The Exemption of The Capital Gains Tax on Preperty Sales
• Emerging Islamic Financial Theme
• Other Recent Developments Set Positive Trends
• A Risk to Note: Non-Performing Loans

BOJ Governor Signals Confidence In US Economy

12 April 2007
http://www.fundsupermart.com/main/research/viewSectorPrint.tpl?articleNo=6047

Summary:

• The Bank of Japan's governor repeated his optimism over the US economy, saying it has a "high probability" of achieving a healthy slowdown despite signs of moderating business investment and high inflation rates.

S&P: Global Growth Is Slowing, But Still Good Historically

12 April 2007
http://www.fundsupermart.com/main/research/viewSectorPrint.tpl?articleNo=6046

Summary:

• China, which accounts for about 15% of global GDP, accounted for 30% of world growth in 2006
• Asia expanded at around 7% last year, while Latin America, which is still recovering from the Argentine economic crisis of 2001 and 2002, grew about 4%
• The U.S., which has been rising at a healthy rate of between 3% and 3.5% expansion of gross domestic product per year, is expected to slow down to around 2.4% this year, Wyss said. Europe and Japan, by contrast, "are speeding up" to around 2% growth this year

IMF Sees Global Economic Output Up 4.9% In Both '07 And '08

11 April 2007
http://www.fundsupermart.com/main/research/viewSectorPrint.tpl?articleNo=6040

Summary:

• Demand in Europe, Japan and developing countries like China and India has offset weaker growth in the U.S. Downside risks to the outlook have receded.
• Forecast for US GDP growth this year is 2.2%, whereas for 2008 is 2.8%
• Much of the U.S. economic slowdown has been concentrated in the housing market, trading partners beyond Canada and Mexico haven't been affected much
• Forecasts for China is 10% for 2007, but raised projections for India sharply higher for both this year and next.
• Assumption that oil prices would fall 5.5% to an average of $60.75 a barrel this year and then rise 6.6% in 2008.

Singapore GDP Data A Comfort For Asia

10 April 2007
http://www.fundsupermart.com/main/research/viewSectorPrint.tpl?articleNo=6031

Top Markets For First Quarter 2007

April 9, 2007
http://www.fundsupermart.com/main/research/viewHTMLPrint.tpl?articleNo=2175

Summary:

• For KLSE, PE (2007) = 16.4X, whereas PE (2008) = 14.4X
• Malaysian equities market is attractive with earnings growth at 13.7% and 13.2% for 2007 and 2008
• For STI, PE(2007) = 17.3X, whereas PE(2008) = 15.6X
• Singapore equities market remains attractive with earnings growth at 6.9% and 10.6% for 2007 and 2008.

Asia's Stock Rally Shows No Sign Of Abating

4 April 2007
http://www.fundsupermart.com/main/research/viewSectorPrint.tpl?articleNo=6017

Summary:

• Expect markets in Singapore, Hong Kong, Malaysia and elsewhere to make some ground
• there is event risk apprearing from the end-week U.S. nonfarm payrolls data. A bad reading would get markets worrying the state of the U.S. economy, which is bad news for companies in Asia which rely on export demand. Some pre-data nerves may therefore set in by Friday, but this could prove a short-term phenomenon.

A Major Global Correction On The Cards?

March 2, 2007
http://www.fundsupermart.com/main/research/viewHTMLPrint.tpl?articleNo=2154

Summary:

• No Major correction as fundamentals of market is strong
  

When Is The Market Volatility Going To End?

March 16, 2007
http://www.fundsupermart.com/main/research/viewHTMLPrint.tpl?articleNo=2160

Fund Resiliency Is Important In Volatile Times!

http://www.fundsupermart.com/main/research/viewHTMLPrint.tpl?articleNo=2170

A WHOLE NEW (EMERGING) WORLD

http://www.fundsupermart.com/main/research/viewHTMLPrint.tpl?articleNo=2172