Asia continues to look appealing for long-term investors. The region offers strong GDP growth; it has built up large trade surpluses and high foreign exchange reserves; the emergence of China has reduced its dependence on the US; and a rapidly emerging middle class, along with favourable demographics, high savings rates and a decline in interest rates over the past few years bodes well for long-term consumption growth. Meanwhile, the Asia ex-Japan region is on a 2005 PE of just 11, and companies are in much better shape than before the Asian crisis, with debt to equity ratios down to 20% from almost 50% in 1998 and return on equity high.
Asia’s healthy companies should give the market some support during what is likely to be a lacklustre second half, says Christopher Wood of CLSA. The markets may start to factor in a slowdown in China – CLSA expects narrowing profit margins amid higher commodity prices and a growing shortage of skilled labour to crimp growth sharply next year – while rate hikes in the US are another headwind. One country that should shrug off a China slowdown is India, where the key story is a boom fuelled by a rapid expansion in consumer and corporate lending from a low base. The market is due a correction after a strong run-up, but it remains, “by a country mile, the best long-term equity story in Asia”.
Thailand is also worth a look, according to Ayaz Ibrahim, HSBC’s chief investment officer for the Asia Pacific ex Japan region. Long-delayed investments in infrastructure are now finally on the cards, which should give the region a boost