A Boom Out East

Real-Estate Markets

Real-Estate Markets

“A flood of cash into Asian investments has pushed stocks, currencies and real-estate markets sharply higher, leaving governments struggling to stem the inflows for fear they will fuel inflation,” Fiona Law reports in The Wall Street Journal.

Last year share prices in Thailand rose 43 per cent in dollar terms, with Singapore up 28 per cent and Hong Kong 27 per cent.

South Korea’s currency strengthened 8 per cent in dollar terms over the year, with Singapore’s up 7 per cent and several – Malaysia, Taiwan and Thailand – up 4 per cent.

Emerging nations in Asia, which delivered 44 per cent of the world’s economic growth last year, are likely to have some of the world’s strongest currencies this year, according to a survey by Bloomberg of forecasters with the best track records. Two units they predict will be among the leaders are the Indian rupee and the Filipino peso.

Property sectors of many share markets in the region are breaking out, reports Jackson Wong of Investors Intelligence. “A stable financial system, good economic growth and rising income levels are essential ingredients for a property boom,” he says.

Some of the stocks that have been performing strongly and look good include Central Pattana in Thailand, KLCC Property in Malaysia, Ayala Land in the Philippines and Hong Kong-listed Evergrande, Longfor Properties and The Link.

Even in the long-depressed Japanese property market, there are signs of life, with an upside breakout in the Topix Real Estate index.

Tim Price, the well-known British investment commentator, says that many of the world’s opportunities in companies with “deep value characteristics” are in Asia.

I agree. And it is equally true of momentum plays. Of my own list of what are currently the most interesting global prospects combining value and growth characteristics, all but two of the top 20 are Asian listings (with one each in the US and Australia). Of the top 40, all but 14 are in Asia.

The boom in middle-class consumers

Tim reminds us that:

  • The region represents almost 70 per cent of the global population, with a share of total income that is now rising rapidly.
  • The rise of the Asian middle class will dominate the next two decades as it soars from 500 million to about 3 billion.
  • Asian personal consumption has grown by 5 to 10 per cent each year over the past five.
  • Among the industries benefiting from this growth are food and beverages, clothing, autos, insurance and transport.

However, there are clear defects in measuring your performance against the MSCI ex-Japan index, argues Greg Fisher, managing director of the new Halley Asian Prosperity fund.

One is that the index “tends to be dominated by inefficient state-controlled Chinese corporations not run for shareholder profit, the ‘old’ model of Asian companies, low-margin exporters to the West, and expensive technology stocks.” His fund will be concentrate on where the future growth will be focused – Asian consumers.

Another problem that by using it as your benchmark, you ignore Japan. Although the world’s third biggest economy has its own issues, such as “old Asia” exporters, a cult of screwing shareholders, and some distressed financials, it also has some mid-cap companies focused on growth elsewhere in Asia.

Fisher, previously a chief investment officer at Morgan Grenfell and Deutsche Asset Management, argues that a problem with Asian equity funds is that because of their size they tend to be dominated “by over-researched large-caps, where it is very difficult for a manager to have an edge, but also where, because of higher valuations, there is little margin of safety should company earnings disappoint.”

He says you should invest in Asia using the classic principles of Ben Graham, focusing on metrics such as low price/earnings ratios, reliable earnings and rising dividends.

CopyRight – OnTarget 2013 by Martin Spring