Two short stories from Aberdeen Asset Management
Six words (and five charts) on Asia
To sum up Asia in six words:“China’s ok, India’s great, Asia’s cheap”.
don’t panic about China (yet), India’s doing well and Asian equity valuations are relatively attractive.
– China’s service sector now accounts for more than 50% of GDP
– Still room for further stimulus
– Fiscal deficit is lowering
– Reform progress is impressive
Don’t feed the bears
Asian markets are getting mauled. what’s going on?
China is the main concern: loss of confidence
– stock market bubble burst
most shares traded do a poor job of reflecting corporate earnings
impotent government market manipulation
on-off speculative appetite of China’s retail investors
– shock of a yuan devaluation
Central banks across the region may be tempted to follow Beijing and weaken their own currencies in an attempt to maintain export competitiveness
Investors worried under such environment:
Prices have been supported by liquidity and confidence in policymakers’ judgement, not by corporate fundamentals.
Reasons for long
– Asia, and more so emerging markets, looks cheap compared to Europe and the US
– corporate earnings there have stabilised for the most part though money is flowing away
– “We may even see an earnings recovery as soon as next year.”
– currencies weakness may exaggerate market weakness in the short term, but they do not play a significant part in equity performance in the long run.
Comparisons being made with the Asian crisis nearly 20 years ago make no sense
One or two countries vulnerable to capital outflows (put pressure on debt servicing and currencies) are the exceptions and we do not see scope for contagion
– because the differences within emerging markets are better understood today
The Global Simplicity Index
Focusing on the world’s 200 largest companies, a research discovery was an inverted relationship between complexity and profit
A certain degree of complexity can be good for business performance, but continually adding to it can be detrimental. The latter includes:
– trying to serve too many different market segments or customers
– attempting to do everything in-house
– having a constantly changing business strategy