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Liquidity shields Asian markets

Strong liquidity in Asian markets means that investors will be less affected by the credit turmoil that has hit the US, UK and Europe.

F&C fund manager Peter Dalgliesh attributes continued strong Asian performance to domestic demand, property price rises and global infrastructure spending.

He says: “As the manufacturing backyard of the developed world, Asia will inevitably suffer on the back of a revision in global GDP growth but the abundance of liquidity in Asian financial markets, especially in China, has insulated the region from many of the problems emanating from the global credit squeeze.”

Dalgliesh adds that China has experienced very strong corporate earnings’ growth, faster than expected GDP growth and negative real interest rates.

He says: “The country’s banks are well funded and comfortably in excess of the reserve requirement ratio imposed by the People’s Bank of China and although inflation has spiked up this year on the back of food price inflation, this is a supplydriven problem which is unwinding as we speak.

“With an increase in state-supplied crops and animal stocks coming to market, this should see inflation roll over by the end of the year.”

He says continued strong themes in China include transport and infrastructure, raw materials and the environment.

The environment is likely to feature high on the Chinese government’s agenda when it convenes at its next five-year congressional meeting in October, says Dalgleish.

He adds: “The problems affecting global credit markets should offer investors greater incentive to allocate capital towards Asia. Assuming that central banks re-liquefy the world’s banks sufficiently, investment focus is likely to turn towards areas of dynamic growth and that, without a shadow of a doubt, is likely to come from Asia.”

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