Corporate fundamentals in Asia have improved significantly, says HSBC Halbis Partners CEO (Asia Pacific) Ayaz Ebrahim.
HONG KONG: Even after last week’s nightmare, Asian markets (excluding Japan) have been the stars since 2001, outperforming most other regional markets. So, are institutional investors looking to book profits and move elsewhere - or do they think Asia is where the action will be, going forward as well?
There are compelling reasons to believe that Asia’s strong performance will continue, says HSBC Halbis Partners CEO (Asia Pacific) Ayaz Ebrahim. “We say that Asia is still looking good,” he emphasised at an event organised by HSBC’s Non-Resident Indian Services Department in Hong Kong and the Overseas Indians’ Business Association (Progressive Group).
For one, says Ebrahim, Asia’s economic growth will continue to outpace that of the developed markets. Indicatively, HSBC estimates that GDP growth in Asia (excluding Japan) will be of the order of 7% in 2006 and 6% in 2007. This is much higher than the corresponding GDP growth estimates for the US (3.2% and 4%); Europe (2% and 2.5%) and Japan (3% and 2.5%). This in itself should translate into better equity performance in Asia, reckons Ebrahim
Secondly, he emphasises, corporate fundamentals in Asia have improved significantly and are now the strongest since the mid-1990s, when Asian markets experienced a crippling financial crisis. Prior to that too, the economies were growing strongly, says Ebrahim, but companies were not focussing on their bottomlines or on return on equity (RoE). Instead, they were busy building assets. Big was beautiful, and abnormally high gearing (debt-to-equity ratio) was the order of the day.
But, says Ebrahim, since then, there’s been a turnaround. RoE for Asian companies now runs at 15-17%, and net gearing is down sharply. “Corporates are making sure that investors make returns.”
In addition, the liquidity pool that can invest in Asian equities is substantial, and rising. Apart from strong foreign investment flows into Asian markets, the constituency of mutual fund investors in Asia has grown.
Additionally, overall valuations for Asian markets are not high in the global context, say Ebrahim. Indicatively, Asian stock markets (excluding Japan) are trading at a forward PE of about 12.5 (after last week’s selloff), which is lower than that of the US (15.3) and European (12.9) markets; in fact, Asian markets are trading a notch below their 15-year average PE (17.0) and way below their 15-year historical high (28.2).
Taken together, these factors open up attractive investment opportunities, says Ebrahim. In particular, he says, two markets in Asia - China and South Korea - are poised for a re-rating.
And are there any risks that he foresees? One is of US inflation rates rising faster than expected, leading to further rate hikes; also, if US property prices fall, it could impact consumer sentiments; the possibility of a further rise in oil prices is an obvious cause of concern; trade frictions are never good news, and of course geopolitical concerns and avian influenza are potential threats.
But all things considered, the Asian drama looks set to roll on. “We believe that the structural changes that we’ve seen in Asia in recent years are driving performances that will continue to reward long-term investments in Asian markets,” says Ebrahim.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}