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Outlook for Asian equities

25 June 2009

Jan de Brujin, Asia equity fund manager at Threadneedle UK, is taking a more cautious approach to Asia, despite the market rising in the past few months.

The market has seen a return of risk appetite from Asian investors, resulting in the MSCI Asia Pacific ex-Japan Index rising by 14.4 per cent in May, the third consecutive double-digit rise. However, Bruijn, who is visiting Asia this week, has some more cautious opinions on the outlook for the region.

He says, ‘After such a strong rally it is to be expected that Asian markets will tread water and take a breather for a while. Markets have gone from being cheap at the start of the year to being close to fair value, but we have an element of comfort knowing that they are not too expensive yet.

‘Whilst risk appetite remains higher than at the start of the year, market risks have also increased, with visibility for the second half continuing to be poor.  Loose monetary policy and aggressive fiscal policy have ensured Asian economic growth will now be stronger than initially expected at the start of the year, but it is a global recovery in economic demand which is needed to sustain the quality of this growth.  Without a global recovery, this growth in Asia is questionable, although China and India do represent exceptions.

‘Nevertheless, we remain confident that the sheer liquidity in the region, coupled with the loose monetary policy, limits the downside.

‘We are unlikely to retest the lows seen in the last year as Asia's comparatively superior macro outlook suggests that Asian markets are likely to continue to outperform other equity markets.  However, the lack of certainty means we continue to hold a mixture of quality “leaders” within this space, preferring the domestic plays in contrast to export-related stocks.  

‘Catalysts that would make us more aggressive would be clearer signs of an improving global macro environment, and/or indications of better earnings growth for the second half.’

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